Saudi Arabia said on Thursday that it will increase government spending in 2017 to boost flagging economic growth after it ad successfully cut into its huge state budget deficit this year.
In 2016, the deficit shrank to 297 billion riyals ($79 billion). That was below the government’s projection in its original 2016 budget plan of a deficit of 326 billion riyals and well below a record 367 billion gap in 2015.
“Our economy, thank God, is sturdy and it has enough strength to cope with the current economic and financial challenges,” King Salman said in a nationally televised address to introduce the budget for 2017.
The fall in the global price of oil over the past two and half years was the major cause of the financial challenges for Saudi Arabia.
However how the 2016 deficit stacks up as a percentage of the economy is not yet been announced. It was 15 percent of GDP in 2015.
International investors are worried about Saudi Arabia’s ability to cope with an era of cheap oil and it is hoped that the drop in the deficit is nonetheless likely to reassure such large international investors interested or invested Saudi Arabia. Currently the riyal jitters have eased in recent months even though the currency of the country had come under speculative pressure this year.
In order to get its finances under control, earlier Riyadh had slashed spending on infrastructure and perks for civil servants. The actual spending was 825 billion riyals compared with a projection of 840 billion riyals which was for the first time in years that the kingdom had kept its spending below its original budget projection in 2016.
As the government raised cash with steps such as higher municipal and visa fees, revenues came in slightly higher than expected at 528 billion riyals instead of 514 billion riyals.
From the 840 billion riyals originally projected for 2016, Riyadh said it would increase spending to 890 billion riyals in its 2017. But the government said that because of higher oil prices and non-oil revenues, next year’s deficit will shrink further to 198 billion riyals.
As austerity measures hurt consumers’ income and deterred private companies from investing, economic growth slowed to 1.4 percent in 2016, far below the average of 4 percent in the past decade. This was despite of the fact that their investment is vital to diversify the Saudi economy beyond oil in the long term.
The finance ministry said that 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, by increasing state spending on infrastructure, the 2017 budget aims to support economic growth.
It gave no details of the planned subsidy cuts.
(Adapted from CNBC)
Categories: Economy & Finance