The latest Saudi budget reaffirms government efforts to spur stronger growth while not overlooking the goal of achieving a budgetary balance. Better oil prices and exports of crude could help the kingdom achieve the dual objectives concurrently.
Despite recent faltering, oil prices did increase 37 per cent in 2018. The budget for 2019 sets a record in regard to projected spending, and assumes expenditures of $295 billion, up a fairly notable 7 per cent versus the actual figures for 2018 and more when compared to the planned spending.
If history is any guide, the final statistics will be subject to drastic changes by reflecting variables in oil prices and production levels. Last year’s budget was prepared with an estimated spending of $261 billion though it ended at $275 billion.
Revenues for 2019 budget are pegged at $259 billion compared with the projected $209 billion in 2018. The deficit is on a steady fall on the back of robust revenues — the gap for fiscal 2019 is estimated at $36 billion. It had swollen to $98 billion in 2015, the first full year following the plunge in oil prices in mid-2014, before declining to $79 billion in 2016 and more thereafter.
The share of budget deficit as percentage of GDP is also on the slide. It had amounted to 15 per cent of GDP in 2015, and then declining to 12.8 per cent in 2016, 8.9 per cent in 2017 and levelling off at 8 per cent in 2018. The prospects are that it could dip even lower in 2019.
The authorities are aiming at a balanced budget in 2023, something increasingly looking possible notwithstanding the rapid rise in expenditures. The original plan had called for a zero deficit by 2022, and now pushed back by a single year.
The data for fiscal year 2019 further confirm the pivotal importance of government spending, with planned expenditures representing around 40 per cent of the gross domestic product (GDP) ... and that is high by global standards.
However, officials feel the urge to engage in a spending spree as part of efforts to address some of the outstanding economic challenges. The jobless rate continues in the double-digit territory — at around 12 per cent for nationals and even higher among women.
This socioeconomic debacle could not remain unresolved. The government likes to lead by example. Nevertheless, some of the adopted — albeit controversial — measures include restricting certain professions for Saudi nationals in private sector establishments.
Much to their credit, Saudi officials seem determined to strengthen the revenue side. The kingdom leads GCC countries in the introduction of consumption taxes by introducing excise taxes on tobacco, energy and soft drinks in 2017. The UAE followed suit, and later Bahrain joined the move.
Saudi Arabia and the UAE have since introduced value added taxes and Bahrain is due to start imposing a 5 per cent VAT early 2019. Prospects for Saudi economy look promising. The International Monetary Fund (IMF) is projecting a real GDP growth rate of 2.4 per cent in 2019, up from 2.2 per cent and much better than the dismal contraction of nearly 1 per cent in 2017.
The IMF is projecting a 3 per cent GDP growth rate for the entire GCC in 2019. The US-based Institute of International Finance expects GDP growth of 2.7 per cent for the entire GCC.
Dr Jasim Ali is a Member of Parliament in Bahrain.