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Chart 12: Breakdown of expenditure on inbound tourist trips
SARbn
80
60
40
20
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Other
Religious
Business
Family visits
Holidays
religious tourism (% of total, rhs)
80
70
60
50
40
Source: SAMA, BofA Merrill Lynch Global Research.

Chart 13: Inbound tourist trips to Saudi Arabia by country of origin
1%
5%
7%
25%
45%
17%
GCC
Middle East
Asia
Europe
Africa
America
Source: SAMA, BofA Merrill Lynch Global Research. Data as of 2015.

Mixed prospects for fiscal consolidation
The apparent redistribution of part of the proceeds of the flagship fiscal measures towards funding the NTP initiatives suggests that the fiscal consolidation efforts could fall short of the necessary requirement to narrow imbalances materially in the absence of a sustained oil price recovery. We calculate that the NTP targets a total net cumulative fiscal consolidation effort of SAR648bn (US$172.8bn) or c1% of GDP annually, assuming progressive and full implementation of the non-oil revenue targets.

Energy policy needs to support economic transformation
Energy policy is likely to be less aggressive going forward, particularly as the NTP suggests a constant oil production capacity as well as an increase in gas production domestically which could free up domestic crude for exports. To remain consistent with the targeted government debt accumulation path, we estimate that oil prices have to average at least US$50/bbl in 2016-20 along with no growth in spending from 2016 levels (excluding the additional cost of NTP initiatives but including implementation of the NTP non-oil revenue measures). Oil prices of at least cUS$65/bbl would be required if spending is not disciplined or revenue targets are missed by c50%, in our view.

Blueprint for fiscal measures lacks details
The approved NTP initiatives will have a total fiscal cost of SAR268bn (US$71.5bn; 11.6% of GDP) spread over five years (annually, SAR54bn equivalent to US$14.3bn or 2.3% of GDP). Government financing could represent 60% of total funding needs for the NTP initiatives, with total NTP costs of SAR447bn (US$119bn; 18.4% of GDP). Against that, the NTP envisages raising SAR366bn in non-oil revenues and cut the wage bill by 5% or SAR24bn (US$6.4bn or 1% of GDP). Non-oil revenue is seen rising to SAR530bn (US$141bn, 23% of 2016f GDP) by 2020 from SAR163.5bn (7% of GDP).

Wage bill measure unclear but may carry profound social implications
In an unprecedented austerity measure, the share of the wage bill in total spending would fall by 5ppt to 40% (SAR456bn, from SAR480bn) by 2020. It is yet unclear how this could be achieved in practice. Furthermore, note that the MoF budget announcement estimated the wage bill in 2015 to stand at SAR450bn, blurring the target. Privatizations of government entities are likely to lead to a natural drop in the public sector number of employees and wage bill. Yet we note that the Ministry of Civil Service has two Key Performance Indicators (KPIs) directly linked to a decrease in the payroll and benefits expenditure, and to a reduction in workers in the civil service sector. This would likely be a contentious and unpopular measure to implement, and its implementation and success appear challenging to us.

Merrill Lynch
GEMs Paper #26 | 30 June 2016 17
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