Riyadh (AFP): OPEC kingpin Saudi Arabia on Thursday projected another budget deficit in 2017 but reported a less-than-expected shortfall for this year after cutbacks in the face of lower oil prices.
It is the first budget since the kingdom, aiming for a balanced budget by 2020, announced a wide-ranging plan to wean the economy off its oil dependency.
Budget figures show the kingdom is making progress in that goal.
Non-oil revenues in the Arab world’s biggest economy rose this year to 199 billion riyals ($53 billion) or 38 percent of total income, up from 28 percent last year and 13 percent two years ago.
This year’s deficit will be 297 billion riyals ($79 billion), with a shortfall next year of 198 billion riyals ($53 billion), cabinet said in a statement.
The 2016 deficit is down 8.9 percent from 2016’s budget forecast, and is based on expected revenues of 528 billion riyals.
Spending is expected to come in at 825 billion riyals for 2016, down 16 percent from last year after cuts in major projects, cabinet said.
Expenses next year will reach 890 billion riyals ($237 billion) against revenues of 692 billion riyals ($184 billion), it said in a statement.
– Unprecedented cuts –
“This budget comes at a time of a highly volatile economic situation… and which led to a slowdown in world economic growth and a drop in oil prices that impacted our country,” King Salman said with Finance Minister Mohammed Aljadaan seated nearby at a table of cabinet ministers.
The kingdom froze major building projects, cut cabinet ministers’ salaries and imposed a wage freeze on civil servants in the wake of last year’s record deficit of $97 billion.
Analysts said that figure was 15 percent of gross domestic product, making it one of the largest in the emerging world.
The government made unprecedented cuts to fuel and utilities subsidies last year in a country long accustomed to some of the cheapest petrol in the world.
Domestic fuel and electricity prices will increase again in 2017, Energy Minister Khaled al-Falih told reporters, but the needy will receive a supplement to help them cope.
A year of cutbacks left retailers complaining of lower sales and residents saying they had less money to spend.
Aljadaan eased worries of further economic pain by saying: “There will not be taxes on the citizens, the residents or Saudi businesses” for the next four years.
London-based Capital Economics said the budget reflects an easing of austerity following “progress made with fiscal consolidation over the past couple of years”.
– A change of course –
Oil prices, which were above $100 a barrel in 2014, sank below $40 in 2016 but have recovered some strength and traded on Thursday below $55.
Saudi Arabia’s budget assumes a price of $50 per barrel, Capital Economics said.
The global oil price rebound followed a late-November agreement by the Saudi-led Organization of the Petroleum Exporting Countries to make its first joint production cut in eight years.
Analysts said Saudi Arabia’s domestic economic situation forced it to agree to the deal.
After flooding the market in a policy to hold market share — but which deprived the kingdom of crucial revenue — Saudi Arabia finally agreed to change course.
According to the International Monetary Fund, Saudi Arabia would need an oil price of $77.7 per barrel for its budget to break even.
The plunge in global oil prices led Riyadh to intensify economic reform efforts, which are being led by Salman’s son, Deputy Crown Prince Mohammed bin Salman, 31.
In April, the prince released the Vision 2030 programme to develop the private sector and streamline government.
Along with drawing on its still-substantial foreign exchange reserves to help cover the deficit, Saudi Arabia issued domestic bonds and in October raised $17.5 billion from its first international bond issue.
At the end of 2016, public debt will be almost 317 billion riyals ($85 billion), roughly one third of which is foreign debt, the budget said.
Military expenditure for 2017 is seen at 191 billion riyals, down almost 11 percent from what Riyadh expected to spend this year.