Saudi Arabian officials have presented the most detailed budget in the country's history in an effort to convince citizens and investors that they are serious about a plan to repair the deficit and wean the economy off oil.
Dozens of pages and slides presented in an hours-long press conference laid out different scenarios for how public finances, battered after two years of low oil prices, could evolve through 2020. The government said it reduced spending by 16 per cent this year and narrowed its budget deficit by more than expected. It forecasts the shortfall will drop again next year as revenue improves, and may even turn to a surplus as early as 2019 in its most optimistic scenario.
While some analysts welcomed the unprecedented detail, others reacted with scepticism, casting doubt on the credibility of figures and pointing out that the government’s efforts to balance its budget over the next four years still rely on rising oil prices.
The announcements also reflected the headwinds facing the biggest Arab economy, in which the majority of citizens work in the public sector and Saudi companies rely on inexpensive foreign workers. The non-oil economy barely grew this year, with private sector expansion under 1 per cent.
"While there is a real desire among senior officials to address structural problems, the budget reveals the government's willingness to use higher projected crude export revenues to drive growth through expansionary spending," Crispin Hawes, London-based managing director at Teneo Intelligence, said in an email. "In relative terms, oil revenues will remain the dominant line in fiscal accounts for the foreseeable future."
The plans are a culmination of a year that saw the biggest economic overhaul in Saudi history, as deputy crown prince Mohammed bin Salman, the son of King Salman, charted out a strategy to end the kingdom's "addiction" to oil. Even though Brent crude rebounded this year to about $55 a barrel, it is 35 per cent below its 10-year average.
"The budget is still clearly reliant on oil and oil-related revenue, but it does show pleasing growth in non-oil revenue," Emad Mostaque, a London-based strategist at emerging-markets consultancy Eclectic Strategy, said in an email. "Most of the low-hanging non-oil revenue has now been tapped, 2017 will mark the year when we need to see the underlying economy kick on and create the hundreds of thousands of jobs the next generation of Saudis need."
The budget figures unveiled on Thursday included, for the first time, projections for where revenue and spending is headed in the next four years and the state's military spending. The kingdom said it would allocate 7 per cent less to defence next year even as it continues to lead a coalition fighting rebels in Yemen. – (Bloomberg)
