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An expected contraction in existing cities and expansion in new cities

Redirecting expansionary spending to be through the Public Investment Fund instead of the general budget means that the channels of exchange and the areas to which these expenditures will end will be different from the previous period to which the economy was accustomed. It is likely that the new cities will benefit more from these investments, while the benefit of the existing cities will remain limited, which means that the growth rates within the economy will be mixed between an expected contraction in the existing cities and an expansion in the new cities during the year 2021 AD.

Or in other words, we will see varying growth rates in the sections of the GDP, the best of which will be in the construction section.

Although the Corona pandemic negatively affected the private sector, it remains fortunate

The pandemic certainly negatively affected the financial performance of companies, but the government provided financial support in it that would not have happened under the usual circumstances, especially since the last support provided by the government to the private sector was the private sector stimulus program of up to 50 billion annually since 2017.

According to my perception, the private sector during the year 2020 AD was fortunate with the Corona pandemic and the government financial support that accompanied it, so the growth of the economy during the year 2020 AD was subject to weakness in any case and perhaps to a slowdown, regardless of the pandemic, after it became clear at the end of the year 2019 AD that the public finance policy will be austerity until 2022 AD Other than the one announced at the beginning of the year. (See the attached graph of the consumer price index since January 2019)

The Minister of Finance indicated on several occasions during the year 2019 AD that the privatization programs and the private sector will support economic growth in light of the austerity public finance policy, and during the year 2020 AD he also referred to an expected role for development funds in supporting the financing of capital projects, which according to my perception will have a more effective role, especially if The work of these funds was directed to finance infrastructure projects.

“Eighth: The Minister of Finance may withdraw from the reserve and borrow to finance the payment of the principal of the debt, the payment of binding and explicit government guarantees, or the payment of financial obligations that are not classified as expenses from the budget, including the capitals of development funds for which royal or royal orders are issued.”

The text of the authorization in the Royal Decree regarding the state’s general budget for the fiscal year 1442-1443 AH (2021)

Until now, it is not clear the impact of these steps on supporting economic growth in existing cities, as the amount of amounts that these funds will pump into the economy annually has not been determined. However, it is noted during the year 2021 that there is a mandate for the Minister of Finance to finance development funds from outside the budget by borrowing or paying guarantees without setting a ceiling on the size of these amounts.