Investors and residents can breathe easier now that the UAE and Saudi are projecting a more robust image of fiscal momentum, non-oil diversification and growth despite the catalyst coming from a rise in oil prices.
The numbers are encouraging
Zawya reported that the UAE and Kuwait are set to return to fiscal surpluses in 2018 on the back of financial windfall from the recovery in oil prices, while Saudi Arabia should post a modest deficit, Fitch analysts said.
“Pro-cyclical spending increases in some countries could leave public finances exposed when oil prices fall back, which is our baseline assumption,” said the Fitch report.
Driven by a higher average oil price and, in most countries, increases in production after Opec+ countries agreed to boost output, all oil exporters in the Mena region will see significant improvements in their fiscal and external balances in 2018, Fitch analysts said.
“Saudi Arabia and the UAE implemented VAT and excise taxes… Domestic energy prices have been reformed to varying degrees. Governments remain committed to limiting current spending, and many have cut capital spending. These reforms are reflected in lower fiscal breakeven oil prices. Production increases in 2018 and 2019 will reduce the break-evens again,” said the report.
Abu Dhabi’s fiscal break-even oil price is among the lowest for Fitch-rated oil producers, estimated at slightly above $60/bbl, and its fiscal and external positions are among the strongest, with sovereign net foreign assets estimated at 281% of GDP in 2017, and government debt at just 8% of GDP, Fitch said.
Fitch has increased its oil price forecasts to $70/bbl for 2018 and $65/bbl for 2019, from $57.5/bbl for both years.
According to the latest Monster Employment Index (MEI), the UAE registered a healthy 14% growth in jobs in the first half of 2018.
Other industries contributing to the continued first-half growth of the UAE market include consumer goods, production/manufacturing, and business financial services, registering increases of 14, 12 and 9% respectively, the index said.
As unemployment among Saudis increases to 12.9%, with about 250,000 nationals entering the job market annually, the government is considering the creation of 500,000 new government jobs, which would be at odds with the crown prince’s plan to cut public spending, informed sources told Bloomberg, as reported by Mubasher.
The Saudi transport ministry has announced that it has completed work on 55 road projects worth $1.32 billion during the first half of the year, according to Mubasher.
The 1,699-km-long roads are aimed at helping the kingdom boost its infrastructure and the economic growth of many sectors, reported Mubasher, citing a ministry statement.
Another 477 projects extending across 12,050 km are under construction, stated the report.
UAE, Saudi Arabia non-oil sector growth
The UAE recorded a three-year high in export orders, according to the Emirates NBD Purchasing Managers’ Index (PMI), compiled by IHS Markit
Both the UAE and Saudi Arabia recorded softer growth in output and new work in July than June 2018.
The Index for the UAE declined to 55.8 in July from 57.1 in June.
Commenting on the UAE PMI survey, Khatija Haque, head of Mena Research at Emirates NBD, said: “Notably, new export orders increased at the sharpest rate in three years, as firms reported stronger demand from other GCC countries and Europe.”
“Employment was broadly unchanged in July, with the index barely above the neutral level at 50.2. Year-to-date, the employment index averaged 50.8, compared with 51.2 in the same period last year.”
While input cost inflation remained relatively modest in July compared with earlier this year, firms continued to lower average selling prices, with output prices declining for the third month in a row. The continued squeeze on firms’ margins is likely a key factor in the soft employment survey, as firms remain under pressure to contain costs and boost efficiency,” the PMI survey said.
For Saudi, Haque said: “The headline Emirates NBD Saudi Arabia Purchasing Managers’ Index (PMI) eased marginally to 54.9 in July from 55.0 in June.”
“The PMI survey showed both output and new orders increased sharply last month, although at a slightly slower rate than in June.”
Employment increased modestly in July, as did new export orders.
Firms saw inventories rise at the fastest rate this year in July, which may indicate some optimism about improving demand in the near term. More than 18% of respondents expected their output to be higher in 12 months’ time, down from more than 40%earlier in the year.
“Despite a continuation of robust business conditions and rising backlogs of work, job creation in the non-oil private sector remained historically subdued. July’s increase in employment was only slight overall, matching that registered in June,” said the report.