Saudi Arabia on Tuesday unveiled the 2018 budget, the largest in the kingdom’s history with 978 billion riyals ($261 billion) public spending.
The government expects a budget deficit for the fifth year in the row in 2018 with an estimated shortfall of 195 billion riyals with the government revenues projected at 783 billion riyals ($208.8 billion).
Saudi budget was widely anticipated by economists to be expansionary next year largely driven by improved fiscal situation and higher oil prices.
Recent increase in oil prices has given more fiscal space for Saudi Arabia to achieve its budget targets in a phased manner with lesser impact on economic growth according to Bank of America (BofA Merrill Lynch) analysts.
“Higher oil prices support government efforts to lengthen the timeline for fiscal consolidation. We see modest loosening but acknowledge risks to this view,” Jean-Michel Saliba Mena economist, BofA Merrill Lynch said ahead of the budget.
Analysts said recent comments by Mohammad Al Jadaan, Saudi Finance Minister about an expansionary budget for 2018 clearly hinted at higher government spending. Last month, the minister projected spending could rise to 928 billion riyals in 2018, from a budgeted figure of 890 billion riyals in 2017. However the actual budget spending for 2018 overshot the spending projections by 195 billion riyals, marginally lower than the 198 budget deficit last year.
The Saudi finance ministry said on Tuesday that the budget deficit for 2017 came in at 227.88 billion riyals ($61.3 billion), higher than the expected 198 billion riyals but still lower than the 327 billion riyals shortfall in the previous year.
Actual revenues for the current fiscal year rose by a healthy 34 per cent compared with 2016 to $185.6 billion due a sharp hike in both oil and non-oil revenues.
Analysts said the increase in budget allocation was largely expected as the kingdom looks to provide support to economic activity, while also progressing with fiscal reforms such as VAT introduction and subsidy reduction.
Saudi Arabia’s fiscal data for the third quarter of 2017, showing a shrinking of the government deficit by 9.4 per cent year on year to 48.7 billion riyals. For the full year, the kingdom announced its budget deficit narrowed in 2017 to below 10 per cent of economic output for the first time since the collapse in oil prices battered public finances.
For the whole year 2017 the budget deficit dropped to 8.9 per cent of gross domestic product from almost 13 per cent in 2016, the official Saudi Press Agency reported late on Monday, citing Finance Ministry official Yarub Al Thunyan.
An attempt to rein in deficit would be a welcome boost for the kingdom as it grapples with lower oil revenue after prices of crude plummeted in 2014, causing the budget deficit to surge to about 15 per cent of GDP in 2015. In response, authorities cut spending and introduced austerity measures including cuts to generous subsidies.
In the first half of last year, deficits fell significantly but the pace of the fall of the deficit moderated in the third quarter of 2017 from first 2 quarters of the year. The main factor behind decline in deficits during the third quarter was higher non-oil revenue, which grew by 80 per cent year on year.