Saudi’s riches conceal lack of decision making on every single item of the country’s main current worrisome concerns. For instance, in Keep OPEC out of Wall Street published by Journal of Energy Security of July 19, 2017, we were informed that for the past several months two of the world’s leading stock exchanges – the New York Stock Exchange (NYSE) and the London Stock Exchange (LSE) – have been competing over the listing of Saudi Aramco, Saudi Arabia’s national oil company, in what would be the largest IPO in history.
But for the Saudis the choice between New York and London is not an easy one. Prince Mohammad Bin Salman, who was recently installed as the Kingdom’s crown prince and who is considered the mastermind of the IPO, prefers an NYSE listing which would solidify US-Saudi relations even beyond the recent $350 billion arms deal between the two countries. Aramco executives on the other hand prefer London as there, they believe, the company would be more protected from shareholders lawsuits over not only the conduct of the company but also that of the Saudi government. To date no decision has been made.
No one can blame the owners of those exchanges for their eagerness. The same is true for the underwriters of the IPO like Goldman Sachs and JP Morgan or the various consultancies and law firms benefiting from lucrative retainers and consulting fees associated with the offering. With an estimated valuation of $2 trillion the five percent Aramco will be offering the public are valued at $100 billion – more than the combined value of the top five largest IPOs ever floated in New York City. With such a bonanza every crumb is a mountain of cash. But from the broader public’s perspective things look vastly different. The Aramco IPO is a test of the integrity of our financial system and under the current structure no democratic government which believes in free and open markets should expose its investors to such an offering.
In the meantime, the IMF has recently come up with this conclusion-report of their Executive Board on the country that is reproduced here with our thanks to all. Reading the above article in conjunction with the proposed one below can be very enlightening at a time where as reported by Reuters on this Monday morning that Oil prices dip as prospect of deeper OPEC output cut dims.
On July 17, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV Consultation  with Saudi Arabia.
Non-oil growth is projected to pick up to 1.7 percent in 2017, but overall real GDP growth is expected to be close to zero as oil GDP declines in line with Saudi Arabia’s commitments under the OPEC+ agreement. Growth is expected to strengthen over the medium-term as structural reforms are implemented. Risks mainly come from uncertainties about future oil prices, as well as questions about how the ongoing reforms will affect the economy. Employment growth has weakened, and the unemployment rate among Saudi nationals has increased to 12.3 percent.
After increasing in early 2016 due to higher energy and water prices, CPI inflation has turned negative in recent months. It is, however, expected to increase over the next year due to the recently introduced excises taxes, further energy price reforms, and the introduction of the VAT at the beginning of 2018.
The fiscal deficit is projected to narrow substantially in the coming years. It is expected to decline from 17.2 percent of GDP in 2016 to 9.3 percent of GDP in 2017 and to just under 1 percent of GDP by 2022. This assumes that the major non-oil revenue reforms and energy price increases outlined in the Fiscal Balance Program are introduced on schedule and that operational and expenditure savings identified so far by the Bureau of Spending Rationalizations are realized. The deficit is expected to continue to be financed by a combination of asset drawdowns and domestic and international borrowing.
The current account balance is expected to move into a small surplus in 2017 as oil export revenues increase and import growth and remittance outflows remain relatively subdued. Net financial outflows are expected to continue, and SAMA’s NFA is projected to continue to decline, although it will remain at a comfortable level.
Credit and deposit growth are weak and are only expected to recover gradually. Interbank interest rates, which spiked higher during 2016, have fallen, and liquidity in the banking system is at adequate levels. Non-performing loans (NPLs) increased slightly to 1.4 percent, but remain low.
Saudi Arabia has embarked on a bold reform program under Vision 2030 that was announced in 2016. The authorities have made considerable progress in initiating the implementation of their ambitious reform agenda. Fiscal consolidation efforts are beginning to bear fruit, progress with reforms to improve the business environment are gaining momentum, and a framework to increase the transparency and accountability of government is largely in place. Effective prioritization, sequencing, and coordination of the reforms is essential, and they need to be well-communicated and equitable to gain social buy-in and ensure their success.
Please read more in the original document.
Chatham House is arranging for a webinar to be held on Tuesday July 25, 2017 between 10:00 and 10:30 BST
|Vision 2030: Can Saudi Arabia Effectively Modernise?|
|With as Jane Kinninmont, Senior Research Fellow and Deputy Head, Middle East and North Africa Programme, Chatham House as a speaker.|