Saudi Arabia unveils road to reform

Riyadh/Dubai - State budget deficit reduced significantly; government spending to be increased

Saudi Arabia said on Thursday it had successfully cut into its huge state budget deficit this year and will increase government spending in 2017 to boost flagging economic growth.
The deficit shrank to SR297 billion ($79 billion) in 2016. That was well below a record SR367 billion gap in 2015, and below the government's projection in its original 2016 budget plan of a deficit of SR326 billion.
"Our economy, thank God, is sturdy and it has enough strength to cope with the current economic and financial challenges," the Custodian of the Two Holy Mosques, King Salman bin Abdulaziz of Saudi Arabia, said in a nationally-televised address to introduce the budget for 2017.
The financial challenges for Saudi Arabia stem largely from the fall in the global price of oil over the past 2-1/2 years. It is not yet been announced how the 2016 deficit stacks up as a percentage of the economy. It was 15 per cent of GDP in 2015. The drop in the deficit is nonetheless likely to reassure international investors worried about Saudi Arabia's ability to cope with an era of cheap oil. The riyal came under speculative pressure this year but currency jitters have eased in recent months.
Riyadh slashed spending on infrastructure and perks for civil servants to get its finances under control. For the first time in years, it kept its spending below its original budget projection in 2016; actual spending was SR825 billion compared with a projection of SR840 billion. Revenues came in slightly higher than expected at SR528 billion instead of SR514 billion as the government raised cash with steps such as higher municipal and visa fees.
In its 2017 budget plan, Riyadh said it would increase spending to SR890 billion from the SR840 billion originally projected for 2016. But next year's deficit will shrink further to SR198 billion because of higher oil prices and non-oil revenues, the government said.
By increasing state spending on infrastructure, the 2017 budget aims to support economic growth, while a new system of cash payments to poorer citizens will offset the impact on them as the government gradually raises domestic energy prices to reduce its subsidy burden, the finance ministry said.
It gave no details of the planned subsidy cuts.
 
MAJOR DETAILS
. Energy subsidies: Government plans to gradually phase out subsidies on energy, although needy citizens will receive "direct cash support".
. Debt: Over the next four years, Saudi Arabia plans to diversify its debt sales, both domestically and internationally, to include sukuk.
. Privatisations: The National Centre for Privatisation will determine in 2017 the possibility of privatisations in various sectors.
. VAT: The government will complete arrangements for the introduction of value-added tax, which is to begin at a 5% rate in 2018. It would also implement selective taxes on tobacco, and soft and energy drinks as part of a GCC countries' agreement.
. Balanced budget: The government continues to work towards achieving a balanced national budget in 2020.
. Public-private partnerships: Seventeen government agencies have identified 85 potential projects that could be suitable for cooperation between the public and private sectors.

• Saudi Arabia