Riyadh increases spending, adopts tough new measures
London - Saudi Arabia’s budget for 2017 increases spending while implementing a host of tough new measures aimed at achieving “financial balance” within four years.
The government said the budget deficit for 2016 was nearly $79.2 billion, down from an all-time high of $97.57 billion in 2015. The deficit reduction follows austerity measures in which civil service bonuses were cut and energy and water subsidies reduced.
“Our economy, thank God, is sturdy and it has enough strength to cope with the current economic and financial challenges,” Saudi King Salman bin Abdulaziz Al Saud said in a televised address to introduce the budget.
Saudi Arabia, the world’s biggest oil exporter, faced a fiscal crunch after crude prices plunged in mid- 2014, prompting the government to put forward a new fiscal plan known as Vision 2030 to diversify the country’s economy away from its reliance on oil.
Despite the austerity measures and the low price of oil, Saudi Arabia announced plans to increase spending in 2017, particularly on infrastructure, to stimulate economic growth. Riyadh plans to spend $237 billion in 2017, an 8% increase from estimated spending in 2016.
After slashing state spending on infrastructure in 2016 to address the budget deficit, plans to increase such spending in 2017 are ambitious and could lead to increased investment and employment in the country, particularly in non-oil-related sectors, analysts said.
“The challenge is to balance raising revenues while keeping expenditure discipline and trying to keep growth and confidence in good order,” John Sfakianakis, director of economic research at the Gulf Research Center, told Arab News.
“Taking a medium to longer term budgetary cycle is more important for national development and transformation plans rather than reacting to short-term revenue fluctuations based on a single commodity like oil,” said economist Mohamed Ramady in an opinion piece in Saudi Arabia’s Al Arabiya News.
The new Saudi budget includes several unprecedented reform measures, including plans to phase out energy subsidies, a 5% sales tax to begin in 2018 and funding efforts to increase privatisation.
King Salman stressed the economic restructuring measures adopted by the country following the sharp drop in global oil prices had been painful but were necessary to avoid long-term damage to the country.
Speaking to the Shura Council, he said: “The state has sought to deal with these changes… through a variety of measures to restructure the economy, some of which may be painful in the short run but ultimately aim to protect the economy of your country from worse problems.”
“Similar circumstances have happened before over the past three decades, forcing the state to cut its expenses but it emerged from them, thanks be to God, with a strong economy and continuous and increasing growth,” he said.
Analysts expressed relief at the decline in the deficit while acknowledging that this represents a more fiscally responsible outlook to deal with new challenges.
The budget includes “some tough decisions which neither nationals nor expats living in the kingdom are used to nor will find easy. However, with the ongoing oil price crisis, Riyadh, which until today still relies mostly on the energy economy, had only one of two options: Fight or flight,” an editorial by the Saudi-based English-language Arab News said.
“Rather than burying its head in the sand, praying for solutions and exhausting its reserves, the government opted for the more difficult of the two choices: To fight,” it said.