20 Dec, 2017
Saudi Arabia's Crown Prince Mohammed Bin Salman attends a cabinet meeting as Saudi Arabia's King Salman bin Abdulaziz Al Saud approves 2018 budget, in Riyadh, Saudi Arabia December 19, 2017. Saudi Press Agency/Handout via REUTERS
Saudi Arabia unveiled on Tuesday its largest-ever annual budget for 2018, as the world’s biggest oil exporter projected a return to growth next year amid efforts to lift an economy affected by lower oil revenues and fiscal tightening during 2017.
The kingdom envisages spending of 978 billion riyals in 2018, up 5.6 percent than 926bn riyals in 2017. Next year’s deficit is forecast to fall to 195bn riyals, or 7.3 percent of GDP, compared with a shortfall of 230bn riyals (8.9 percent of GDP) in 2017.
“The expansionary 2018 budget includes a complete set of new development initiatives that aim to create the financial and economic stability that was outlined in Vision 2030,” said Saudi Arabia’s Crown Prince Mohammed Bin Salman.
The Arab world’s biggest economy also intends to continue with an expansionary budget for 2019 with spending projections of 1 trillion riyals, with a fiscal deficit representing 5.9 per cent of GDP. For 2020, the kingdom is projecting a 1.05tn riyals budget with a fiscal deficit of 4.9 percent of GDP.
Saudi Arabia is implementing an economic overhaul plan and various reforms under the 2020 National Transformation Programme and its over-arching Vision 2030 agenda to help wean the country off oil income and create new revenue streams.
The government has pushed back its deadline for a balanced budget to 2023 from 2020, giving the economy time to resume growth, the finance ministry said.
GDP, which rose 1.7 per cent last year, is expected to shrink by 0.5 per cent in 2017 but grow by 2.7 per cent in 2018 and 2019.
“To steer the economy to a new path, they have pushed for expansionary budget and put the austerity on hold,” said Hettish Karmani, head of research at Muscat-based U-Capital. “It is a positive sign for the markets as well and we should see good momentum in the equity markets [on Wednesday] morning.”
Government revenue is forecast to rise 12.5 per cent to 783bn riyals next year from 696bn riyals in 2017. Oil revenue is projected to rise 11.8 per cent to 492bn riyals from 440bn riyals in 2017, while non-oil revenue will grow 13.7 per cent to 291bn riyals.
Saudi Arabia is expected to shore up non-oil revenue via the introduction of a five per cent value-added tax on January 1. The move is expected to bring in 23bn riyals next year, the finance ministry said.
A tax on expatriates’ dependents, introduced earlier this year, is forecast to bring in 28bn riyals next year.
The government, which issued 134bn riyals in debt in 2017 to finance the budget deficit, is projecting only 117bn riyals in debt issuance for 2018. Debt issuance should not exceed 30 per cent of GDP, the ministry said.
Saudi Arabia began tightening spending in 2016 to help bring down its fiscal deficit, which reached a record 367bn riyals in 2015 in the wake of plunging oil prices.
But fiscal consolidation efforts, which included increasing energy prices and freezing public sector salary hikes, have curbed economic growth. Government revenues have been further impacted by an agreement to curb oil production, signed last year and then extended until the end of 2018, intended to shore up oil prices.