Saudi Arabia unveils $19bn stimulus for private sector
Move comes as government tries to revive economy hit by decline in oil revenue
Saudi Arabia unveiled a $19bn stimulus package on Thursday aimed at supporting the struggling private sector next year as the government tries to revive an economy battered by low oil prices and austerity measures.
The package was approved by King Salman and includes subsidised loans for housebuyers and developers, fee waivers for small businesses and financial support for distressed companies, the state news agency reported.
It is the first big part of a broader three-year SR200bn ($53bn) stimulus planned by Riyadh as Crown Prince Mohammed bin Salman tries to balance pushing ahead with an ambitious reform programme with the need to implement tough austerity measures as the budget deficit widens.
The decline in oil revenue over the past three years has pushed the economy into recession and forced the government to slash expenditure, raise debt and spend more than $250bn of its foreign reserves. The private sector, which is dependent on state spending, has borne the brunt of the economic shock, prompting businessmen to call for more government assistance.
But economists said there were doubts about whether the stimulus package, which relies heavily on loans, subsidies and indirect support, will do enough to boost demand in the economy to help companies.
“Finally seeing signs of the plan is clearly positive, however, the success of the stimulus framework is dependent on how well it integrates private sector capabilities with the government’s development objectives,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank. “A framework that provides funding or support for the private sector investment would likely not drive a pick-up in activity given the weak domestic backdrop.”
The International Monetary Fund is forecasting “close to zero” growth this year, with government spending down from 38.6 per cent of gross domestic product in 2016 to 34.3 per cent this year.
The investment climate has been further clouded in recent weeks by Prince Mohammed’s crackdown on corruption in which more than 200 royals and businessmen have been detained.
Those arrested include Prince Alwaleed bin Talal, the billionaire who is one of the kingdom’s most prominent investors, Waleed al-Ibrahim, the founder of Middle East Broadcasting Center, which owns the Saudi satellite television channel Al Arabiya, and Bakr bin Laden, chairman of the Saudi Binladin construction group.
The arrests have rattled the business community and foreign investors just as the government is hoping to attract investment to back Prince Mohammed’s drive to reduce the economy’s dependence on oil.
In a speech this week, King Salman described the suspects detained as a “small group”, adding that the government had “decided to confront [corruption] with justice and firmness so that our country can enjoy the renaissance and development that every citizen aspires for”.
The stimulus package is one of several government initiatives announced ahead of next week’s budget, which is set to be expansionary.
Riyadh unveiled details of a cash transfer programme this week that is designed to compensate low- and middle-income Saudi families and cushion the impact of austerity measures as the authorities prepare to cut energy subsidises next year.
The government will also introduce value added tax next month.
Analysts say the introduction of new taxes and raising energy prices risks creating political tensions in the kingdom as ordinary Saudis feel the brunt of the downturn.