estimated at $70.8 per barrel
26/12/2016 05:51 AST
The Kingdom of Saudi Arabia (KSA) forecasted a deficit of SAR198bn (7.7% of GDP), with a projected revenue of SAR692bn (higher by 31% than actual and +35% compared to the budget in 2016).
For 2017, total expenditure is projected at SAR890bn (+8% actual and +6% budgeted y-o-y); the focus was on avoiding huge increases in spending and ensuring an emphasis on financial control. The 2017 budget, announced on Dec 22, 2016, was prepared in light of advances in the global and local economy (including oil price estimates).
Oil revenue is projected at SAR480bn, up 46% over that in the last year. The increase in projected revenues and expenditure is mainly attributed to the energy pricing reform program, though this would be partly offset by the allowances given to citizens needing government support. The kingdom also announced various measures to boost non-oil revenues including the introduction of visa taxes on non-Saudi workers and an increase in tobacco and sugar taxes. Also, KSA reiterated its intention to implement VAT starting 2018 to boost revenues. However, contrary to rumours, the government categorically denied plans to introduce income tax in the kingdom.
KSA aims to achieve a balanced notional budget in 2020 by implementing various measures, including increasing non-oil revenue, benefiting from efficiency savings on expenditure and ensuring greater fiscal discipline. In our opinion though, oil price movement in future periods would remain a key factor to achieving this goal. Additionally, the government reiterated its intention to cap debt level at 30% of GDP and finance the deficit by debt issuance from both international and local markets. As of December 2016, the government’s debt levels reached 12.3% of GDP (SAR317bn), with international borrowings comprising a third of the total debt.
In addition to the local bonds issue, an international syndicated loan of SAR37.5bn (USD10bn) was borrowed from global investment institutions. The most noteworthy achievement in fiscal year 2016 was the completion of the first issuance of US-denominated international bonds in global markets, with USD17.5bn (SAR65.6bn), the largest US-dollar-denominated sovereign bond in emerging markets. The government aims to continue to fund the deficit via a combination of borrowings and internal reserves.
While the budget did not announce an immediate increase in the fuel prices, reforms in domestic energy prices would be gradual and linked to international markets from 2017 to 2020. Also, any such escalation is expected to be complemented by the introduction of direct cash transfers to needy citizens.
The kingdom announced that its GDP grew 1.4% in 2016.
According to our estimates, the government’s budgeted oil revenue at SAR480bn was considered using a price estimate of USD50.1/barrel. Also, to break even in fiscal balance, the kingdom needs an average oil price of USD70.8/barrel.
In FY17, the government targets a budget deficit at SAR198bn (estimated at 7.7% of GDP), implying 33% and 39% reduction compared with the actual and budgeted numbers for FY16, respectively. Expenditure for 2016 was less than initially projected due to the implementation of measures to reduce spending. Total spending, which involves exclusions for the purpose of like-for-like comparison with last year’s budget, is SAR930bn. For 2016, the actual deficit stood at SAR297bn (12.4% of GDP) and 9% below the budgeted SAR326bn figure. This is also 19% lower than the SAR367bn actual deficit recorded in 2015.
Sectors such as education and healthcare, which directly affect citizens’ lives, were prioritized in the budget. Furthermore, an allocation of SAR268bn was made to cover the cost of the National Transformation Plan (NTP) up to 2020. Of this allocation, around SAR42bn would be spent in 2017. Structural and administrative reforms for 2017 include achievement of a fiscal balance program tha
Arab Times
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