Monday 04, June 2018 by William Mullally

Saudi riyal 12-month forward depreciates slightly in May

During May, the Saudi riyal (SAR) 12 month forward depreciated slightly, from 3.754 to 3.756. The SAR is pegged to the USD at 3.750 to 1. 

During May, the Saudi riyal (SAR) 12 month forward depreciated slightly, from 3.754 to 3.756. The SAR is pegged to the USD at 3.750 to 1. 

According to Ehsan Khoman, Head of Research and Strategist for MENA at MUFG , Key drivers have been weaker fundamentals, including wider fiscal deficit and a weaker PMI activity reading, heightened geopolitical uncertainty owing to the reimposition of US sanctions, as well as the precipitous decline in oil prices due to the policy shift to revive oil output in H2 2018.

"On the date front, the fiscal deficit widened in Q1 2018 to $9.2 billion (-5.4 per cent of GDP) from $7.0bn (-4.1 per cent of GDP) in Q1 2017," said Khoman. "Whilst these quarterly fiscal figures highlights the challenges the Kingdom faces in consolidating its finances and delivering on productive and efficient public spending, we take comfort from the authorities focus in sticking to the Budget 2018 path of provisioning an expansionary fiscal policy, reflecting the willingness to support economic growth. With the recent surge in oil prices not yet fully reflected in the fiscal results (expectations are higher oil prices will be reflected in Q2 2018 data) suggests that the shortfall is likely to narrow for the remainder of the year."

"Separately, PMI fell to just 51.4 in April, down from 52.8 in March – lowest reading since August 2009. New orders contracted in April, with the index falling below the neutral 50.0 level for the first time in the series history. Firms blamed subdued market demand, competitive pressures and “unpredictable economic conditions” as reasons for the decline in order books last month. Finally, the scale of Saudi’s Vision 2030 reform programme does require it to boost FDI and deliver a wholesale overhaul of its domestic economy – a difficult task that might get more challenging ig geopolitical tensions rise and remain elevated," Khoman continued.

 

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