Saudi Arabia’s budget deficit narrowed in 2017 to below 10 per cent of GDP for the first time since the collapse in oil prices battered public finances, as the kingdom prepared to unveil what is expected to be an expansionary budget for next year.
The shortfall dropped to 8.9 per cent of gross domestic product from almost 13 per cent in 2016, the official Saudi Press Agency reported on Monday. The decline is in line with the median estimate of 11 economists surveyed by Bloomberg.
A lower deficit would be a welcome boost for the kingdom as it grapples with lower oil revenues after prices plummeted in 2014, causing the budget deficit to surge to about 15 per cent of GDP the following year. In response, authorities reduced spending and introduced austerity measures including cuts to generous subsidies - policies that helped lower the deficit but led to the worst economic slowdown since the global financial crisis that started in 2007.
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The economy is expected to contract 0.5 per cent this year, according to the latest Bloomberg survey of 14 economists conducted this month.
Saudi officials have said next year's budget, set to be announced on Tuesday, will focus on measures to bolster growth and offset the impact of measures such as value-added tax and more cuts to fuel and electricity subsidies. The balance is crucial to the success of Crown Prince Mohammed bin Salman's plan to overhaul an economy long dependent on oil revenue and government spending.
The last week, government announced a plan to spend 72 billion riyals (Dh70.5bn) over the next few years to boost private sector growth. A cash transfer programme designed to shield needy Saudi families from the impact of subsidy cuts will start this month, and officials said they are unlikely to rush to balance the budget by 2019 as initially planned.
The ministers of energy and commerce, as well as the head of the kingdom’s sovereign wealth fund, will hold a news conference on Wednesday to discuss the “impact of expansionary spending on the private sector,” the official news agency said.
