Saudi Arabia’s cabinet approves 2030 economic plan

A special session of Saudi Arabia’s cabinet on 25 April approved the much-anticipated Vision 2030 economic plan for the kingdom, setting out Riyadh’s roadmap for sweeping economic reforms and its strategy for the next 15 years. Following the approval of the draft plan, the Council of Economic Affairs and Development was mandated to establish the framework and mechanisms to implement the programme. At the session, the cabinet stated that all  ministries and other related government bodies will be required to take the necessary measures to implement the Vision 2030 plan.

IMF cuts global growth forecast on oil and political risks

The Washington-based IMF has cut its world economic growth forecast for the fourth time in a year, saying the global economy is vulnerable to shocks such as sharp currency devaluations and worsening geopolitical conflicts. In its World Economic Outlook report, published on 13 April, the fund forecast global economic growth of 3.2 per cent in 2016, down from a forecast of 3.4 per cent in January. The fund highlighted a worsening economic slowdown spillover from China, and the impact of low oil prices on emerging markets as increasing worries. It also listed persistent economic weakness in Japan, Europe and the US as contributing negative factors for global growth. For the Middle East and North Africa region, 2016 growth estimates were cut to 3.1 per cent, down from 3.6 per cent.

Doha oil producers’ meeting ends without agreement

Oil prices fell back in late April from a 2016 high of $46 a barrel, following three weeks of gains. Brent crude reached a high despite an ongoing global glut and the failure of the oil producers’ meeting in Doha on 17 April to agree a production freeze.The failure to reach an agreement was blamed on Iran’s decision not to attend the summit and Saudi Arabia’s reluctance to freeze production unless its regional rival did the same. Brent crude has recovered from a low of $27 a barrel in January. US oil services company Baker Hughes reported on 22 April that the US rig count had fallen to 343, the lowest number since November 2009. More than 700 US rigs were drilling for oil in April 2015.

Saudi banks downgraded

US-based Fitch Ratings on 12 April downgraded Saudi Arabia’s long-term ratings due to lower estimates for oil prices in the next two years. The country’s long-term foreign and local currency issuer default ratings (IDR) were downgraded to ‘AA-’ from ‘AA’, with Fitch maintaining its negative outlook for the kingdom. The agency revised its assumptions for crude prices down to $35 a barrel for 2016 and $45 a barrel for 2017. US-based Standard & Poor’s (S&P) on 2 April downgraded five banks in Saudi Arabia, including National Commercial Bank. The IMF projects Saudi real GDP growth in 2016 of about 1.2 per cent and 1.9 per cent in 2017.

UAE to register first current account deficit in decades

The UAE is expected to register its first current account deficit in 37 years in 2016, the IMF said on 13 April. The fund indicates the country’s current account balance will have a shortfall of $3.17bn in 2016, equivalent to nearly 1 per cent of its nominal GDP. The UAE’s current account balance stood at $79bn in 2012, and fell to $13.5bn in 2015. Government revenues, mainly from oil royalties and hospitality taxes, declined by 28.5 per cent, or AED157bn ($43bn), between 2014 and 2015 to reach AED393bn. This is expected to drop further, albeit more moderately, to AED324bn in 2016, before easing to about AED348bn in 2017. Nominal GDP is expected to decline to $325bn in 2016, compared with $345bn the previous year. This represents a much slower decrease of 6 per cent, compared with 14-16 per cent in 2015. Nominal GDP growth is expected to recover in 2017 to 9 per cent.

Cairo cedes Red Sea islands to Riyadh

Cairo on 9 April announced it had reached an agreement with Riyadh to redraw the Red Sea maritime border between the two countries and cede sovereignty over two islands to Saudi Arabia. The agreement hands sovereignty of the Tiran and Sanafir islands to the kingdom and was signed during a five-day state visit to Egypt by Saudi Arabia’s King Salman bin Abdulaziz al-Saud. Ownership of the uninhabited islands, which sit at the entrance to the Gulf of Aqaba, has long been disputed, with both Cairo and Riyadh claiming them, although they were under Egyptian control. Egypt and Saudi Arabia also unveiled plans for a Red Sea bridge connecting the two countries.

Saudi Arabia and Egypt to set up $16bn fund

Egypt and Saudi Arabia have signed a series of investment and economic infrastructure development deals, including setting up a SR60bn ($16bn) investment fund to help revive Egypt’s ailing economy. The Saudi-Egyptian Investment Fund is being established between the kingdom’s Public Investment Fund (PIF) and the entities belonging to it and the government of Egypt. Among the other economic pacts, a memorandum of understanding (MoU) was signed between the PIF and Egypt’s Ministry of International Cooperation to establish an economic free zone in the Sinai area. The two Arab nations have also signed agreements to develop a $2.2bn power plant with a generation capacity of 2,250MW, set up agriculture complexes in Sinai and develop a canal to transfer water, according to UK news agency Reuters, which cited a statement from the presidency.

Riyadh identifies almost 150 state assets for sale

Saudi Arabia has identified about 146 state-owned entities that could be privatised or sold to the public as Riyadh looks to monetise assets to meet budget shortfalls amid low oil prices and shrinking revenues. The list, prepared by the Economy & Planning Ministry, includes subsidiaries of core government ministries and government-related entities (GREs). A final list of state assets planned for privatisation is still under development. Riyadh intends to sell stakes to private investors or offer shares in these entities through initial public offerings (IPOs).

Riyadh curbs powers of religious police

Saudi Arabia has barred its religious police from pursuing suspects or making arrests, curbing the powers of an institution that was central to the enforcement of the kingdom’s strict morality rules. Members of the Committee for the Promotion of Virtue and the Prevention of Vice (CPVPV) will not be allowed now to pursue, question, request identification from or arrest suspects. CPVPV is now directed to report suspected crimes to the police or drug authorities. Members are also required to show identity cards while carrying out official duties, according to the statement.

Iran says it can hit pre-sanctions crude output in two months

Iran is on target to increase its oil production to pre-sanctions levels in the next two months, according to the country’s deputy oil minister. Since completing the nuclear deal in January, Tehran has been reclaiming the market share it lost during four years of sanctions against oil exports. Iran was producing less than 4 million barrels a day (b/d) and exporting 2.2 million b/d in late 2011, before the sanctions on exports were introduced. According to Opec estimates, citing secondary sources, the Islamic Republic produced an average of 3.29 million b/d in March, compared with an average of 2.84 million b/d in 2015.

Iran targets nine new nuclear power plants by 2025

Iran is planning to build nine nuclear power plants by 2025, the Atomic Energy Organisation of Iran (AEOI) said on 9 April. The body said the nine facilities would enable the country to meet its target for atomic energy to contribute to 10 per cent of total power production. In 2014, Russia agreed to build up to eight nuclear reactors for Tehran to pursue its nuclear power programme. The agreement will involve Russian companies building two nuclear reactors, with scope for an additional six reactors if required. Russian state nuclear power provider Rosatom commissioned Iran’s first nuclear power plant at Bushehr in 2013.

Saudi Arabia is world’s third-largest military spender

Saudi Arabia recorded the world’s third-largest military spending in 2015, according to the Stockholm International Peace Research Institute (Sipri). The world’s largest spender was the US, with $596bn, while China spent $215bn. In fourth place was Russia, with $66.4bn of spending. The UAE ranked 15. MEED reported in February that the London-based think-tank International Institute for Strategic Studies (IISS) estimates that defence budgets across the Middle East accounted for 6.5 per cent of regional GDP in 2015.

US mulls military support in Yemen war

The US is considering its response to a request made by the UAE for military support to assist a new offensive targeting Al-Qaeda in the Arabian Peninsula (AQAP). The UAE has asked for US help on “medical evacuation and combat search and rescue as part of a broad request for American air power, intelligence and logistics support”. This new development coincides with the ongoing UN-brokered peace talks among the warring factions, which are being held this week in Kuwait. A ceasefire came into effect on 10 April to give way to the discussions aiming to defuse the year-long war.

Riyadh agrees terms on $10bn loan

Riyadh has agreed terms with a group of international lenders for a $10bn loan, its first sovereign debt in at least 15 years.The government has agreed to pay lenders about 120 basis points above the London interbank offered rate (Libor), including margin and fees for the facility. The loan, which is expected to be signed before the end of April, will have a life span of five years. Saudi Arabia has not borrowed from international capital markets since at least 1999.

Middle East contracts awarded: March 2016

A total of 44 major project contracts with a combined value of about $12.8bn were awarded across the Middle East and North Africa (Mena) region in March 2016. Iran Railways tops the list, with the award of the contract to build the 930-kilometre Tehran to Mashhad High Speed Railway to China National Transportation Equipment & Engineering Company. The second-biggest award of the month went to a consortium of South Korea’s Hyundai Engineering and Hyundai Engineering & Construction for the $2.9bn contract to build Kuwait National Petroleum Company’s (KNPC’s) planned liquefied natural gas (LNG) import terminal. Saudi Arabia and the UAE remained hotspots for the construction industry, with a value of awards totalling $1.5bn and $1.3bn respectively in March.

Monitor Middle East contract awards every month.