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Saudi budget is balm for investors stung by austerity drive

[DUBAI] For investors who watched austerity measures pummel growth over the past two years, Saudi Arabia's 2018 budget is a relief.

The world's biggest oil exporter will boost spending to 1.1 trillion riyals (S$394.9 billion) to revive an economy that has languished as the nation copes with lower oil prices. Ashmore Group Plc says it's a sign Crown Prince Mohammed bin Salman's reforms are going ahead.

The spending plan exceeded expectations, said Jaap Meijer, the head of equity research at Arqaam Capital Ltd in Dubai. "Oil prices are up, which means there is fiscal space to support non-oil gross domestic product. That's pretty relevant given the anti-corruption drive, which could have ramifications for GDP growth." The kingdom has gradually relaxed restrictions for foreign investors as part of the Prince Mohammed's plan to overhaul the economy. But cuts to bonuses and subsidies over the past two years have weighed on investors, as have the arrests of high-profile Saudi businessmen and the nation's ongoing spat with Qatar.

The Tadawul All Share Index advanced 0.2 percent to the highest level since Oct. 5 in Riyadh.

The gauge has missed out on a rally that put emerging-market stocks on course for their best year since 2009, and the proportion of stocks owned by foreigners has lingered below 5 per cent since the kingdom first allowed overseas investors to trade Saudi shares directly in 2015. Saudi individuals have been net sellers of stocks every week since April 2016.

Still, "the gradual rolling back of the state and the liberalization of prices are good things," said London-based Jan Dehn, the head of research at Ashmore Group, which manages US$65 billion of emerging-market assets, including Saudi dollar debt. "We're looking at a country that seems to be opening up more and more for investors and liberalizing." The economy will expand 2.7 per cent next year after contracting 0.5 percent in 2017, while inflation will accelerate to 5.7 per cent from less than zero as of the end of 2017, according to government forecasts. The kingdom pushed back its goal of achieving fiscal balance to 2023 from an initial target of 2019.