Saudi reforms needed to attract investment and lower deficit

Reuters

• Aiming for sub-2% deficit
• Regulatory reform needed
• ‘We are not fast enough’

Saudi Arabia must reduce its budget deficit and speed up its regulatory reforms if it is to remain competitive in a tight global market, its finance minister told a conference in Riyadh this week. 

The country needs to get “the budget deficit down to 2 percent (of spending) or less than that, that’s how a country becomes more resilient and is able to help other countries,” Mohammed Al-Jadaan told the Saudi Capital Market Forum. 

Saudi Arabia recorded a budget deficit of SAR81 billion ($21.6 billion) in 2023, as expenditure increased against a backdrop of falling oil revenue, the finance ministry said last week. That was around 6 percent of total expenditure of SAR1.3 trillion. 

• Larger deficits unlikely to trouble Saudi debt access
• Saudi 2023 budget deficit at $22bn as oil revenue dips
• Hundreds of companies consider Saudi Arabia

Last month the IMF lowered its forecast for Saudi Arabia’s increase in GDP in 2024 to 2.7 percent, down from a forecast of 4 percent made last October. This was on the grounds of lower oil production, which is due to continue until March. 

Saudi Arabia has embarked on a massive spending spree as it develops giga-projects at the heart of its Vision 2030 plan launched in 2016 to diversify the economy away from oil. 

The government has been able to sustain borrowing from debt markets through ensuring high credit ratings and sustaining foreign reserves at levels that maintain international confidence in the riyal’s peg to the US dollar. 

But Al-Jadaan said more regulatory reforms across a host of sectors were needed, directing his comments specifically to Capital Markets Authority (CMA) chairman Mohammad ElKuwaiz. 

“If you ask me personally I think we are not fast enough, so please Mr ElKuwaiz, and even Tadawul, who as an exchange have their own regulatory requirements, you are not fast enough,” he said, praising central bank, insurance and macro reforms. 

“We need a strong regulatory framework to provide certainty and predictability for investors and issuers alike,” Al-Jadaan said, pointing to debt capital market reforms that will help attract investors with numerous options around the world to consider Saudi Arabia. 

“You need advisory services and market participants who are able to provide services to issuers and investors at reasonable pricing, which we have. The CMA even waived its fees on the debt side.” 

Investment minister Khalid Al-Falih said Saudi Arabia was an “island of stability” for manufacturing, financial and real estate investors. The government is trying to raise annual foreign direct investment to $100 billion from the current $33 billion.