Saudi Arabia's economy will grow 3.2 per cent in 2021 as the kingdom recovers from a slowdown induced by the Covid-19 pandemic and continues to spend on infrastructure projects.
The kingdom plans to spend 990 billion riyals ($264bn) next year, 7.5 per cent less than in 2020, with projected revenues of 849bn riyals and a deficit of 141bn riyals, or 4.9 per cent of the gross domestic product, King Salman bin Abdulaziz said in a virtual cabinet session that approved the 2021 budget.
"This was a tough year in history, However, the health measures taken, the financial and economic initiatives adopted and the reforms garnered from endorsing the kingdom's Vision 2030, have altogether resulted in curbing the negative impact on citizens and residents in the kingdom and on our economy," King Salman said.
The monarch said the budget will prioritise public health and safety as the pandemic stretches, while aiming to reduce its effects on the economy.
The budget allocates most of the spending to education, military and healthcare at which account for 18.8 per cent, 17.7 per cent and 17.7 per cent, respectively of expenditures.
The government will take measures to stimulate economic growth, support the private sector, ensure social protection for citizens and help boost job creation.
Like most countries, the kingdom's economy contracted as a result of the pandemic and is forecast to shrink 3.7 per cent this year.
Next year's budget aims to "balance ... growth, economic stability and financial sustainability in the medium and long term," continue to develop non-oil revenues, spend efficiently and boost private sector participation, the finance ministry said.
Saudi Arabia's non-oil private sector economy expanded for a third straight month in November to 54.7, the kingdom's highest reading in 10 months, boosted by a rise in output as market conditions improved.
The kingdom will continue spending on major projects, programmes related to the Vision 2030 economic transformation plan that seeks to diversify the economy and reduce its reliance on hydrocarbons, Mohammed Al Jadaan, the finance minister said. The government will also support the private sector through the National Development Fund and the Public Investment Fund, he said.
Last month, Crown Prince Mohammed bin Salman said Saudi Arabia’s PIF will inject $40bn on an annual basis in 2021 and 2022 to promote growth in its economy.
The sovereign wealth fund manages about $320bn in assets. It is backing several 'giga-projects' such as the $500bn Neom futuristic city in the north of the country, the Red Sea tourism project covering more than 90 offshore islands and the Qiddiya entertainment city near Riyadh.
"The pace of growth will accelerate with the demise of the pandemic, especially after the adoption of the vaccine, and things return to normal," Mr Al Jadaan said.
Public debt is projected to reach 937bn riyals or 32.7 per cent of GDP by the end of 2021, compared with about 854bn riyals 34.3 per cent of GDP this year, according to the finance ministry.
Government reserves at the Saudi Central Bank are projected to fall to 280bn riyals next year from an estimated 346bn this year, the finance ministry said.
"Fiscal policies shall continue to pinpoint the priorities of expenditure, and those of maximum economic return and working on strategies that would consolidate government spending stability," the finance ministry said.
It said fiscal policies will also aim to "mitigate its exposure to the oil related revenues performance and that the endeavors of the government to indigenize various sectors and carry out new projects ... [will] increasingly create job opportunities for the citizens."
Saudi Arabia does not specify the price assumption upon which its budget is based, but Goldman Sachs estimates the kingdom assumes an average oil price of about $50 a barrel between 2020 and 2023. National Commercial Bank (NCB), the kingdom's largest lender said it estimates the budget conservatively assumes an oil price range of $45-50.
Brent, the international benchmark for oil, was trading at $50.66 at 10am UAE time on Wednesday. Oil prices, now at six month highs, have rebounded as countries start to roll out vaccines and lockdowns are eased. China, the world's second largest economy and a major buyer of Gulf crude, continues to recover with its industrial output rising 7.0 per cent in November from a year earlier — its highest level in more than two years.
"Despite Covid-19 challenges, the 2021 budget remains consistent with the broader targets of Vision 2030," NCB said in a note on Wednesday. It reflects the government's "ability to adopt appropriate polices to balance between growth, stability, and financial sustainability in the medium and long term."