Saudi Arabia budget expenses cross trillion riyals

Announcing a 1.02 trillion riyal spending in the annual budget for 2020 last week, Saudi Finance Minister Mohammed al-Jadaan said expenditure was on the conservative side given the global economic outlook.

Despite the budget envisaging a revenue of SR833 billion ($222bn) in 2020 and thereby projecting a deficit of SAR187 billion ($50bn) — 6.4 percent of gross domestic product (GDP) — the finance minister promised to continue paying a cost of living allowance to citizens.

The predicted 2020 deficit, which is higher than the SAR137 billion projected for 2019, will probably catalyse the government’s privatization drive that has already seen the kingdom sell 1.5 percent of Aramco, one of the world’s largest companies, to the public.

“We are determined to continue implementing economic reforms, diversifying sources of income, including investing the proceeds of Saudi Aramco by the Public Investment Fund, optimizing the use of available resources, empowering the private sector and raising the level of transparency and efficiency of government spending to boost growth and development rates,” said Saudi King Salman bin Abdulaziz al Saud while announcing the figures after a cabinet meeting in Riyadh.

Elaborating on the budget, Minister Al-Jadaan said that while spending next year would be less than in 2019, the government would continue its focus on developing the private sector, stressing there would be no increases in taxation. He made clear that privatization was a top priority for the government and that it would continue its focus on developing the private sector. “Enabling the private sector is a top priority of Vision 2030 and we will support big and promising projects, as we continue our journey towards Vision 2030,” said the minister.

Education gets the major share of government spending in 2020 with some SR193 billion ($52bn) being set aside for the sector to additionally fund the more than 500 schools that were opened in 2019. The health sector was allotted SR167 billion ($44bn) to ensure health services to the kingdom’s growing population, especially to infants and the elderly.The budget also reveals that most non-oil sectors of the economy posted positive growth rates during the first half of this year with the construction sector recording growth for the first time since 2015, and helping reduce unemployment rate among nationals.

The finance minister added that the percentage of total public debt at the end of the Fiscal Year 2020 was expected to reach 26 percent of GDP, in light of the government’s borrowing policy that balances between the withdrawal from the State’s General Reserves and other sources of financing inside and outside the Kingdom to maintain appropriate levels of local liquidity, in addition to benefit from foreign exchange flows. Meanwhile, medium-term estimates for real GDP growth rates indicates a growth of about 2.3 percent in the Fiscal Year 2020, with the pace of growth expected to continue in the medium term, he stated.

The budget comes against a backdrop of quickening reforms in 2019 and a number of key events from the record initial public offering of Saudi Aramco to the creation of fast track tourism visas. Commenting on the budget, one analyst said that revenue assumptions in the budget were realistic, both oil and non-oil.” She added that despite the planned pullback in government spending, investment activity was likely to strengthen and a pickup in real non-oil GDP growth could be expected. However, she pointed out that any higher investment activity would have to be spurred by the Public Investment Fund, the kingdom’s sovereign wealth fund.

“The finance ministry hosted a visit of international investors to coincide with this year’s budget announcement, underscoring the government’s desire to attract more overseas investment in the slipstream of the world’s biggest IPO. The group included a number of international investment companies, insurers and asset managers.

While reducing the Kingdom’s dependence on oil revenues is a key part of the Vision 2030 reform agenda, hydrocarbon resources remain the principal driver of spending trends for both Saudi Arabia and other Gulf Cooperation Council (GCC) oil-exporting states. They have been coordinating production cuts since 2017 through the OPEC+ group of producers that includes Russia, in an effort to keep the market in balance amid surging output from US shale producers. Recently, the Kingdom spearheaded an agreement between the OPEC+ group of exporters to commit to further output cuts to help avert an oversupply of oil on the global market.