Saudi Arabia is intensifying efforts to shrink the highest budget deficit among the world’s biggest 20 economies, aiming to cancel more than US$20 billion of projects and slash ministry budgets by a quarter.
The government is reviewing thousands of projects valued at about 260bn Saudi riyals (Dh254bn) and may cancel a third of them, sources said. The measures would impact the budget for several years.
A separate plan includes merging some government ministries and eliminating others.
The world’s biggest oil exporter is taking unprecedented steps to rein in a budget shortfall that ballooned to 16 per cent of GDP last year, curtailing fuel and utility subsidies as well as cutting billions of dollars in spending. The International Monetary Fund expects the shortfall to drop to below 10 per cent of GDP next year.
The finance ministry declined to comment, while officials at the ministry of economy and planning were not available for comment. Several senior government officials are accompanying deputy crown Prince Mohammed bin Salman on an Asian tour.
“The revenue and economic diversification strategy being pursued will only start to yield results over the medium- to long-term,” said Raza Agha, VTB Capital’s chief economist for the Middle East and Africa. “In the short term, it is a question of living with lower oil prices by cutting some capital spending, and financing what’s left through debt sales and drawing down foreign reserves.”
The benchmark Tadawul All Share Index fell 0.2 per cent at the close in Riyadh yesterday. The measure has dropped 17 per cent over the past 12 months.
Prince Mohammed is leading plans for the biggest economic shake-up in the kingdom’s history to reduce the economy’s reliance on oil after the plunge in crude prices. His blueprint includes selling a stake in the oil giant Aramco and creating the world’s biggest sovereign wealth fund.
In the meantime, however, efforts to repair public finances are slowing the expansion of the biggest Arab economy, with non-oil GDP contracting in the first quarter of this year.
“Much lower government spending will translate into lower private-sector growth, which is already starting to be seen in economic indicators this year,” said John Sfakianakis, the director of economic research at the Gulf Research Center. “It’s a double-edged sword as the government has to rationalise spending because of the drop in oil revenue.”
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