Govt incentives to support Saudi household consumption: BofAML

Real private household consumption in Saudi Arabia will remain stable in 2018, supported by the combination of royal grants and household allowance disbursements, Bank of America Merrill Lynch (BofAML) said on Sunday.

"Saudization efforts and targeted stimulus should support consumption. This is especially, as the bulk of reforms directly impacting Saudi households have already been carried out," the bank said in its weekly report.

The Kingdom introduced the Citizen's Account Program in December 2017 to support Saudi nationals from the cost of fiscal reforms. The eligible households number three million under the scheme, covering 10.6 million nationals.

BofAML estimates almost 67 percent of eligible households (2 million) to receive full coverage of SAR 900 a month though it is less generous than the initial guidance in the Fiscal Balance program, which proposed payments of up to SAR 1,200/month.

However, the SAR 32 billion allocated in the 2018 budget to the program versus current annualized costs of SAR 25 billion will provide flexibility, it added.

Separately, the bank believed sharp hikes to gasoline and electricity prices suggest further increases are unlikely in the short-term.

Electricity prices for residential users are already approaching international prices, with average tariff estimated at SAR22/kwh, versus BofAML's estimated benchmark of SAR26/kwh. Premium gasoline prices are now, on average, around global prices ($10/bbl below benchmark), it noted.

Meanwhile, the bank said successful Saudization is likely to prove supportive for consumption trends though it may cause higher costs and impact business margins for corporates.

"The eventual replacement of lower-level expatriate labor by higher-paid Saudi labor supports consumption," it added.

However, the report does not expect the renewed labor market measures from the authorities to cause major expatriate departures.

"Despite the introduction of expatriate dependent fees and expatriate levies, expatriates will likely still be better off financially in Saudi Arabia than in their home countries," the bank said.

As for corporates, there is still not enough of an incentive to switch to employing nationals at the low skills level end of the spectrum, it noted.