Saudis Present Plans to Run Low-Budget Kingdom

27/01/2016 16:24 AST

Saudi Arabia has presented a plan that seeks to reassure investors its economy can cope with the challenges of cheap oil, which left the kingdom with a budget deficit in 2015 that was 15 percent of GDP.

Saudi Arabia has presented a reform plan to investors, which aims to reduce its dependence on oil and shrink the public sector, after low oil prices and a costly war in neighboring Yemen stretched the kingdom's finances in 2015.

The Saudi economy is "going to switch from simple quantitative growth based on commodity exports to qualitative growth that is evenly distributed," Khalid al-Falih, who is Saudi Arabian health minister and chairman of state oil and gas giant Saudi Aramco, told a meeting of investors on Monday.

State spending is to stimulate new growth and job creation in the early stages of the plan, which aims to shift growth and job creation from the public sector, where two thirds of local workers currently work, to the private sector.

The announcement comes after the Saudi government released its budget for 2016, which revealed an estimated decline in revenue of 15 percent of GDP in 2015.

In September 2015 financial services market intelligence company Insight Discovery reported that the Saudi Arabian Monetary Agency (SAMA), the kingdom' central bank, had pulled out between $50 billion to $70 billion from global asset managers over the previous six months to cut its budget deficit, and finance the war it is leading against Houthi rebels in Yemen.

SAMA's 2016 budget shows that total revenue in 2015 was 608 billion Saudi riyals ($162 billion), 73 percent of which was from oil revenue. The amount of oil revenue was 23 percent less than in 2014.

The budget projects spending of 840 billion riyals ($224 billion) in 2016, down from 975 billion spent in 2015, and a fiscal deficit of 326.2 billion riyals in 2016.

In addition, it foresees the implementation of a series of reform measures including better fiscal planning, lower wages, and the privatization of a range of sectors and economic activities.

On Monday, Khalid al-Falih said plans to hold an IPO of Saudi Aramco are a "sign of the times" that shows openness to foreign investors and "not for cash."

The company chairman had told Al Arabiya television that it is studying options for a share sale, including a full initial public offering, or listing some of its subsidiaries.

"The fact that the crown jewel of the Kingdom … the company that has been generating the predominant income to the treasury of the Kingdom of Saudi Arabia is being considered to be taken to the stock market, I think is a sign of the confidence the Kingdom has in its enterprises," al-Falih said.

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