Healthcare and Tourism are new areas of focus: Saudi Arabia 2021 budget expansionary confirms

Analysts told Argaam that Saudi Arabia's budget for 2021 is expansionary. The government-controlled funds are expected to compensate for previous budget cuts, announced by the Ministry of Finance.

According to the budget statement for FY2021 published on 15th Dec, the real GDP growth of about 3.2 percent for the fiscal year 2021.

The Government aims to reduce the budget deficit to SR141 billion ($37.6 billion), or 4.9 percent of gross domestic product (GDP), in fiscal year 2021, with an aim to enhance spending efficiency and achieve fiscal stability.

Experts state that Saudi Arabia seeks to spend directly on promising sectors like healthcare as it succeeded in controlling the pandemic with government’s support. SR175 billion has been allocated for the health and social development sector so that they continue implementing precautionary measures towards the citizen’s safety.

According to Vijay Valecha, chief investment officer at Century Financial, The 2021 budget is somewhat expansionary. Since government-controlled funds are required to compensate for previous budget cuts overall, the Kingdom is expected to adhere to its 7 percent investment plan for the majority of FY2021.

The economy is expected to rebound to 3.2 percent next year, according to macro growth level, which is way higher than the current year’s projected drop of 3.7 percent. Reduction in overall spending plan is planned by the finance ministry for next 3 years.

He stressed that the overall reduction in the deficit is beneficial to the economy in the long run. Some of the main assumptions for fiscal breakeven and further expansion, such as state asset privatization and PIF investment, must bear fruit on the economy. Valecha further affirms.

The budget, according to Ahmed Saleem, senior analyst at SHUAA Capital Saudi Arabia, is in line with general expectations. It signals more cautious approach, which is critical during these unprecedented pandemic times.

He noted that the budget's emphasis on healthcare reflects policymakers' interests and was to be anticipated given the remarkable year the world has just experienced.

2021 can be considered to be the year of recovery with a greater degree of certainty, with healthcare and construction predicted to be among the top picks for market participants. Saleem confirms.

Lowering the deficit is a panic response in the short term, according to Saleem. But it will result in increased spending levels in the years after 2021. Rising public debt, with improving market activity as COVID-19 fades away, it could imply a relatively stronger year for the banking sector. He confirms.

Sohail Hayyan, a Riyadh-based independent investment analyst, pointed out that the 2021 budget is designed in such a way that it guarantees 3.2 percent GDP growth with cautious oil price expectations and balanced use of debt and reserve access.

He noted that the PIF will continue to be a strategic and efficient vehicle for boosting non-oil GDP growth in the medium and long term. It will also provide significant short-term economic and financial benefits with Vision 2030 objectives.

Saudi Arabia is expected to report a lower deficit and lower use of public debt and reserve despite having stable expenses. It is no doubt a significant and welcoming growth. “Sustainability is the path forward,” Hayyan said. Retaining enough dynamism and flexibility is needed, in the light of positive global and local economic developments.

According to Sher Mehta, founder and CEO of Virtuoso Economics, Saudi Arabia's economy will likely expand slower in 2021 and upcoming years due to low oil prices and uncertainty surrounding the pandemic.

It might look like a gradual economic recovery, but in 2021, Travel and Tourism in Saudi Arabia will develop eventually.