The commencement of an international sovereign bond issuance program will alleviate the liquidity pressure in the Saudi domestic banking system and lead to lower FX reserve withdrawals to finance the deficit, Jadwa Investment said in its KSA ‘Macroeconomic Update' for November. The report said that "fiscal consolidation, primarily on the capital side, coupled with higher-than-forecasted oil prices, as well as improved non-oil revenues, will mean a smaller-than-anticipated fiscal deficit in both 2016 and 2017. We have revised down our 2016 and 2017 forecast for the budget deficit to SR265 and SR151 billion, respectively." Since the start of 2016, and in line with targets specified in the National Transformation Plan (NTP 2020), prudent policies to reform the fiscal budget have been taken. The report adds that multiple efforts to raise non-oil revenue, including higher fees for government services and improved efficiency in revenue collection, will contribute to strong growth in non-oil revenues during 2016 and 2017. It also states that recovery in oil prices, compared to earlier this year, will lead to an improvement in oil revenue for the government. Inflation in the Kingdom has been on a decelerating trend so far this year, which is reflective of the slowdown in consumption, it noted. Meanwhile, the report also forecast current account deficit to be smaller-than-anticipated, mainly due to lower-than-expected value of imports of goods and services. Inflation in Saudi Arabia has been on a decelerating trend despite the hike in prices of domestic energy products. According to Jadwa Investment's report, this is reflective of the slowdown in consumption, and can be attributed to subdued inflation rates among the Kingdom's main trading partners. Further, the report mentions that concerns over global economic and regional political risks, as well as a prolonged period of lower oil prices continue to be the main risks to the forecast. Continued volatility and tightening of global financing conditions could be triggered by an upward shift in market expectations of official interest rates, it added. — SG
