(MENAFN - Saudi Press Agency)
VIII: Economic and Financial Risks
The 2018 budget and medium-term financial and economic framework have been prepared in light of major financial and economic assumptions that have been based on the available economic information, updates, and circumstances, locally and globally
Nevertheless, a number of these financial and economic variables may witness some updates that may affect assumptions positively or negatively, hence affecting the current estimations of the financial performance for the upcoming fiscal year and in the medium term. Most important variables that are likely to influence the performance of the local economy are as follows:
1-Global Oil Prices:
Although a number of reforms and initiatives designed to diversify economy and develop revenue sources their effect will be reflected gradually. As a result, oil revenues will continue to be a main source of revenue in the budget. Considering the sharp volatility of oil prices, rising and falling, during last years, it can be concluded that a decline in oil prices is a risk that may negatively impact the country's financial performance. The most significant factors affecting oil prices can be addressed from two sides. As for the global oil demand, the change in prices will be motivated by the growth of major and emerging economies. For the global oil supply, the change will be triggered by the producers' commitment to the OPEC agreement, development of other energy resources and political developments in some oil-exporting countries.
To overcome these risks, the government continues to implement a comprehensive program to increase non-oil revenues as well as coordinating with oil-exporting countries to create a balance between oil supply and demand in global market.
2-Non-Oil GDP Growth Rates:
Non-oil economic activity growth rates are considered a major factor in the development of the performance of general revenue and influencing public finances. New initiatives to develop non-oil revenues, such as value-added tax (VAT), and excise tax will be implemented. The most important risks cover private sectors' pace of response to investment opportunities available in the Kingdom of Saudi Arabia as well as the degree of improvement in investment climate and changes that may occur in the pattern of private consumption in the light of economic developments.
To face these risks, the government implements, in the area of encouraging investment of private sector, a number of initiatives, besides maintaining government investments at good levels to work as a spur for economic activity. Some of these initiatives are the development of programs to encourage investment, especially in industry; immediate repayment of private sectors' dues without delay; application of some procedures to encourage and attract investment in Saudi Arabia; implementation of privatization programs that create opportunities to develop the investments of private sector; continuation of investment to improve the infrastructure, an incentive factor for the development of private investment; and the establishment of a new system for public-private partnerships. Furthermore, at the level of encouraging private consumption, the government seeks to carry out many compensatory measures, such as the Citizen Account to compensate households and offset the impact on their spending.
3-Financial and Economic Effects of Economic Initiatives and Reforms:
The government is set to implement a number of reform initiatives that will correct some financial and price imbalances and achieve fiscal sustainability and economic growth. These goals are necessary if the government is to maintain adequate living standards for citizens. Indeed, fiscal sustainability is considered a key factor for the private sector in making investment decisions. However, such initiatives may have side effects or other effects that might be different from what has been projected, especially as many of these initiatives are being implemented without precedent.
16:13 LOCAL TIME 13:13 GMT