Saudi could get $21bn non-oil boost in 2018

Bloomberg

Saudi Arabia’s non-oil revenue could surge by about 80 billion riyals ($21.3 billion) next year, according to Bank of America Merrill Lynch, boosting the kingdom’s efforts to reduce the economy’s reliance on crude. The increase would be driven by the implementation of value-added taxation, a tax on luxury products and higher fees imposed on expatriates’ dependents, London-based economist Jean-Michel Saliba wrote in the report. The kingdom has already introduced a tax on soft drinks and tobacco this year.
Saudi Arabia’s budget deficit narrowed in the second quarter this year, helped by a 28 percent increase in revenue from crude exports as well as a drop in spending. Non-oil revenue, however, dropped 17 percent, highlighting the kingdom’s struggle to diver-
sify it economy as part of a plan spearheaded by Crown Prince
Mohammed bin Salman.
“Non-oil revenues are somewhat lower year-on-year in the first half of 2017 but should increase materially starting from 2018 onwards as fiscal reforms kick in,” Saliba wrote. Other highlights in the BofA report included: Next leg of fiscal reforms expected to take place by year-end; The drop in central bank reserves and tighter fiscal balances suggest capital outflows; Tight spending is likely keeping non-oil real GDP growth weak Authorities appear to have underspent the budgeted target.
In an interview with Bloom-berg News last year, Crown Prince Mohammed said his plan aims to raise at least $100 billion a year in additional non-oil revenue by 2020. Non-oil income fell in the second quarter largely because of a decline in “other revenues,” which include returns on investments by the central bank and the country’s sovereign wealth fund, the Finance Ministry said this month. Revenue collected from customs taxes and and other taxes, including the zakat religious levy, also declined.
YIELDS DOWN IN 13 BILLION RIYAL SUKUK SALE
Saudi Arabia’s finance ministry pushed yields down slightly in its second monthly sale of domestic Islamic bonds on Tuesday, a sign of healthy appetite for the debt as Riyadh covers a budget deficit caused by low oil prices. Riyadh auctioned 13 billion riyals
($3.5 billion) of local currency sukuk, with the offer 295 percent subscribed. It sold 2.1 billion riyals of five-year, 7.7 billion riyals of seven-year and 3.2 billion riyals of 10-year sukuk, the ministry said.
The size of the issue was down slightly from the government’s first monthly offer in July, when it sold 17 billion riyals and attracted 51 billion of bids. However, while the ministry did not disclose the pricing of its sales, bankers said the latest auction saw the five-year sukuk priced at a profit rate of 2.7 percent, the seven-year at 3.2 percent and the 10-year at 3.5 percent. That was down from rates of 2.95 percent, 3.25 percent and 3.55 percent in July’s sale. “Good demand pushed down the yields a bit,” one Saudi banker said.
Tight banking system liquidity forced Riyadh to suspend domestic sales of conventional bonds in late 2016, but a modest rebound in oil prices has now strengthened state finances, allowing
the government to pay more of its bills to the private sector
and leaving banks with more money to buy sukuk. Increasing familiarity with the sukuk may have contributed to the drop in yields. The ministry qualified
13 Saudi banks to buy its sukuk issues in the primary market
but hopes other institutional and professional investors will
eventually buy in the secondary market. Also, yields on Riyadh’s internationally issued US dollar sukuk have come down by
about 12 to 15 basis points since the last domestic sale, partly
because of fading expectations
of more US interest rate hikes this year.

Saudi Arabia to transfer airports to sovereign fund in privatisation drive
RIYADH / Reuters

Saudi Arabia plans to transfer ownership of all its airports to its main sovereign wealth fund, the Public Investment Fund, as part of a drive to privatise them, a senior aviation official said.
Companies will be set up for each airport under Saudi Civil Aviation Holding, a spin-off from the General Authority of Civil Aviation (GACA), which will continue to regulate
the industry, state news agency SPA quoted Mohammed
al-Shetwey, aide to GACA’s president for financial
affairs, as saying.
“The process of establishing companies will continue for all airports, and the civil aviation holding company in the future will be 100 percent owned by the Public Investment Fund,” Shetwey said.
He added that a company had already been established for Dammam’s main airport, while an expanded King Abdulaziz International Airport in Jeddah would start operating in the second half of 2018 under the management of Singapore’s Changi Airport Group. Shetwey did not say when or how the Public Investment Fund would sell stakes in the airport companies under the privatisation programme.
However, sources told Reuters last month that Saudi Arabia had hired Goldman Sachs to manage the sale of a stake in Riyadh’s King Khalid International Airport, which would be the first major privatisation. The size of the stake to be offered was not revealed.
Shetwey said a project to refurbish that airport, which handled 22.5 million passengers in 2016, would begin after next week’s haj pilgrimage.