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03 November 2019

Saudi Arabia to cut spending as private sector growth picks up

The government started providing a preliminary budget outlook for the first-time last year as part of an effort to make its public accounts more transparent and kept the figures largely unchanged in its final fiscal programme.


Saudi Arabia’s Finance Minister said that the Kingdom plans to gradually reduce government spending as private-sector growth picks up and businesses take the lead, reported Bloomberg.

According to a pre-budget statement issued by the finance ministry, spending is expected to fall from about SAR 1.05 trillion ($280 billion) this year to SAR 1.02 trillion in 2020, then to SAR 955 billion riyals by 2022.

That will not mean an early fall in the deficit, with the government of the biggest Arab economy expecting the shortfall to rise to 6.5 per cent of the gross domestic product next year, compared to 4.7 per cent in 2019.

The decline in spending comes as Crown Prince Mohammed bin Salman’s overhaul of the oil-dependent economy shows signs of progress.

Mohammed Al-Jadaan, the Saudi Finance Minister, said, “We believe at one stage you will need to start plateauing and then reducing your government spend as the economy picks up, some of the spend that we would have otherwise made next year and the year after is now being made by the private sector.”

The Kingdom expects 2020 revenue to be SAR 833 billion versus an estimated SAR 917 billion in 2019

Additionally, Saudi Arabia projected 2019 budget deficit at SAR 131 billion and it will increase to SAR 187 billion in 2020 before falling to SAR 92 billion in 2022.

Saudi Arabia has tried to keep the fiscal taps open without blowing a bigger hole in the budget as it steers the economy from its near-total dependence on crude. Despite the acceleration in non-oil growth this year to the fastest since 2015, output curbs negotiated by OPEC are increasingly a drag. The attack on Saudi oil infrastructure last month also put the spotlight on risks ahead.

The International Monetary Fund slashed its forecast for Saudi GDP growth this year to near zero from 1.9 per cent.

“While non-oil growth is expected to strengthen in 2019 on higher government spending and confidence, oil GDP in Saudi Arabia is projected to decline against the backdrop of the extension of the OPEC+ agreement and a generally weak global oil market,” said the IMF.




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