Saudi Arabian government said it has set 2016 revenue targets at 513 billion riyals, while spending may reach 840 billion riyals, according to a decree read out on state television.
Spending in 2015 was 975 billion riyals. Saudi Arabian stocks advanced after the government’s budget deficit for 2015 was better than economists expected.
The budget announcement comes against a worsening economic backdrop, after the plunge in oil prices curbed revenue, forcing the world’s biggest crude exporter to dip into its foreign reserves and tap the bond market. The budget deficit was expected to be as high as 500 billion riyals, but was narrowed due to “some procedures” the government took to boost the efficiency of state spending.
“The 13 per cent overshoot is less than what market has expected, especially since the war in Yemen was supposed to cost the Saudis a lot,” said Reda Gomaa, a portfolio manager at Mashreq Capital DIFC Ltd.
“That’s why the market reacted positively to the data.” The deficit is at about 16 per cent of gross domestic product, according to Alp Eke, senior economist at National Bank of Abu Dhabi.
The median estimate of 10 economists forecast a shortfall of 20 per cent of GDP this year, according to data compiled by Bloomberg.
While the government may reduce capital expenditure, it’s unlikely to reduce spending on healthcare, education or major infrastructure projects, according to Fahad Al Turki, the Riyadh-based chief economist at Jadwa Investment.
For 2015, the Kingdom will likely post a deficit of 20 per cent of gross domestic product, according to the median estimate of 10 economists in a survey. The shortfall will narrow to about 14 per cent in 2016, economists estimate.
The oil slump has pushed the government to mull putting projects on hold, sell bonds and order departments to search for savings. Major development initiatives won’t be delayed, Al Assaf said earlier this year, signaling projects like the Riyadh metro system are unlikely to be affected.
“Most of the expenditure was business as usual until the last few months,” said Mohammed Al Sabban, a Saudi economist and former oil ministry adviser. The war in Yemen, while “very important security wise,” has also been a financial burden, he said.
In its first months in power, King Salman’s administration brought swift change to the traditionally slow-moving kingdom, overhauling the cabinet, merging ministries and realigning the royal succession. The financial crunch imposed by cheaper oil means the focus is now shifting to economic reforms, with local media reporting a “national transformation programme” to be unveiled in January.
In an interview with the New York Times last month, Deputy Crown Prince Mohammed bin Salman, the king’s son, said the government plans to raise domestic energy prices, privatise and tax mining, and will consider new taxes on cigarettes.
The government may also sell stakes in ports, railways, utilities and airports, two people with knowledge of the matter said this month. Hospitals may also be privatised, one person said.