Saudi 2019 budget balances between fiscal prudence and stimulus: MUFG

Saudi Arabia’s 2019 budget appears to have struck a fine balance between focusing on stimulus to drive economic growth and fiscal prudence, MUFG said in a recent report.

“At face value, the 2019 budget is pragmatic, real GDP growth enhancing and maintains the government’s strategy of a focus on fiscal stimulus rather than austerity,” the report added.

MUFG, however, said whilst it considers that Ministry of Finance’s (MOF) forecasts for next year as pragmatic with the large fiscal stimulus enhancing real GDP growth in 2019, the oil revenue figures are based on optimistic assumptions for oil prices.

“Based on this, and under our oil modelling scenario of $66-68 a barrel for 2019, compared with the MoF’s fiscal deficit projection of $34.9 billion (4.3 percent of GDP) next year, our own modelling estimates imply a fiscal deficit of $54.3 billion (6.8 percent of GDP) in 2019,” MUFG report added.

MUFG said it forecasts signal considerable upside risks to Saudi financing requirements in 2019 with the expectation of a larger drawdown of FX reserves and potentially a level of government banking deposit drawdown which could have ramifications for domestic liquidity.