Consumer spending in Saudi Arabia improved in July, as POS transactions and ATM withdrawals, both posted their best annual growth rates in about nine months, said Al Rajhi Capital, a top financial services provider in the kingdom.

Meanwhile, credit to the private sector continued to decline, indicating sluggish private sector economic activity, it added.

Sama’s reserve assets also resumed the downtrend, slipping 1.2 per cent month-on-month (m-o-m) to SR1,854 billion ($494 billion), after a brief monthly rise in June 2017, despite the government raising local debt in July. “We believe this might be attributable to the government’s foreign investment activities,” Al Rajhi said.

The government has raised another SR13 billion in August 2017 through a domestic Islamic bond sale to fund its budget deficit, which could limit further foreign reserve drawdown. Meanwhile, the Kingdom’s fiscal position improved further in Q2 2017 supported by higher oil revenue and cut in expenditure.

The H1 deficit constituted only 37 per cent of the government’s deficit projection for the entire year. Moody’s stated that the deficit is deemed as ‘credit positive’ for the Kingdom. The government continues to push for privatization, which will help reduce the burden of the expenditure on government finances, the latest step being floating tenders for greenfield and brownfield expansion projects across a dozen airports.

The Kingdom raised SR 13 billion from the second monthly sale of domestic Islamic bonds, after raising SR 17 billion in July 2017. The government offered lower yields in the second round owing to higher demand. The 5-year sukuk was priced at 2.7 per cent, the 7-year at 3.2 per cent and the 10-year at 3.5 per cent.

Saudi Arabia’s Q2 2017 fiscal deficit declined to SR 46.5 billion as against SR 58 billion last year, backed by the 6 per cent yearly rise in revenue and a 1 per cent y-o-y fall in expenses. The H1 2017 deficit is SR 72.7 billion, sharply lower on a pro-rata basis than the government’s projection of SR 198 billion for 2017.

Revenue increased in Q2 2017 (SR 163.9 billion Vs SR 144.1 billion in Q1 2017), while the expenditure rose to SR 210.4 billion in Q2 2017 compared to SR 170.3 billion in Q1 2017. On a y-o-y basis, 1H revenue increased ~29 per cent to SR308 billion and expenditure decreased ~2 per cent to SR380.7 billion. (Figure 2 & 3)

Point-of-sale (POS) transaction pointed to improved consumer spending activity, rising 12.8 per cent y-o-y in July 2017, compared to the annual drop of 0.8 per cent in June. Meanwhile, the ATM transactions rose by 2.4 per cent y-o-y in July 2017 as against the fall of 11.4 per cent y-o-y in June 2017.

Inflation continued to prevail in negative territory in July 2017, owing to the continued drop in food and beverages sector coupled with the fall in transport and clothing/ footwear sectors. Despite the rise in POS transaction value, we believe inflation is being weighed down by benign global commodity prices impacting ‘Food and Beverage’ sector inflation and weakness in housing and discretionary sectors (Transport, Restaurants, Clothing and Footwear).

“We believe inflation does not indicate the actual core inflation in Saudi Arabia as some of the key components that compose inflation index are based on imports or are regulated by Government,” Al Rajhi concluded. – TradeArabia News Service