Higher spending to boost Saudi GDP growth in 2018: Moody's

Saudi Arabia's real gross domestic product (GDP) is likely to be supported in 2018 by higher government spending and off-budget expenditure through the Public Investment Fund (PIF) and the National Development Fund, after the economy contracted by 0.5 percent year-on-year in 2017, Moody's Investors Service said in a new report on Thursday.

According to the 2018 state budget, the Kingdom boosted spending in Q4 2017, and this trend will continue in 2018.

"Fiscal performance in 2017, the planned budget deficit in 2018, as well as the updated medium-term forecasts until 2023 under the new Fiscal Balance Program are in line with our expectations and therefore do not change our view of Saudi Arabia's fiscal strength," the rating agency said.

The updated medium-term figures are more realistic than its highly ambitious goal of balancing the budget by 2020 and also are more in line with the long-standing expectations of more gradual fiscal consolidation.

Saudi Arabia's fiscal accounts will remain highly vulnerable to oil price volatility given that oil revenues will still account for over 40 percent of total revenue by 2023, according to the updated official medium-term projections.

The government is expected to continue tapping international and local capital markets, and draw on its fiscal reserves.

The projected 11.8 percent increase in oil revenues over the preliminary results for 2017 suggests an implicit oil price assumption of almost $60 per barrel – assuming constant production volumes in line with the OPEC cuts and implementation of the energy price reforms in early 2018.

For the fiscal performance in 2017, though the preliminary deficit stood at SAR 230 billion (8.9 percent of the official GDP estimate, it was 16 percent above the budgeted deficit of SAR198 billion, but in line with the rating agency's expectation of a 9 percent of GDP fiscal deficit, the report added.