Saudi Public Budget for FY17

The Saudi cabinet adopted on December 22, 2016 the state budget for the fiscal year 2017 (1439/1438 AH); the first budget since the cabinet’s approval of the Vision 2030 in April 2016 and its directives to the Economic Affairs and Development Council to set up the mechanisms necessary to implement this vision and follow-up arrangements. In accordance with the requirements of this stage, some ministries and government agencies were restructured to achieve efficiency and effectiveness in the practice of their functions and powers.

The budget is an integral part in a long-term road map aiming to eliminate the financial deficit and reducing dependence on oil by the year 2020 through reform measures that seek to adjust government spending and promote non-oil revenues as the main engine of economic growth.

According to the statement of the public budget for 2017:
•?Total public revenues were estimated at SAR 692 billion, up 31% from the estimated level of 2016. Oil revenues were forecasted at SAR 480 billion, while nonoil revenues were predicted at SAR 212 billion.
•?Public expenditure was set at SAR 890 billion up 8% from 2016.
•?The government factored in a budget deficit of SAR198 billion, sliding 33% versus 2016. The government will continue to finance the deficit through the issuance of new debt instruments in addition to withdrawal from international reserves.

With regards to 2016, the government estimated the public revenues at SAR 528 billion rising 2.7%, coupled with public spending of SAR 825* billion 1.8% down from the budgeted figure at the beginning of the year. The public spending also slumped 15.6% from SAR 978 billion in 2015, thus resulting in a budget deficit of SAR 297 billion representing 11.55% of GDP. The deficit will surge to SAR 402 billion when adding the dues of the previous years paid in 2016.

For the first time in ten years, public spending fell below the initial budget figure of SAR 840 billion (excluding the payments of dues pertaining to FY15), thus heralding improved spending control.

In the fourth quarter of 2016, the government paid SAR 80 billion from the late dues of the private sector, which reflected positively on many of the relevant companies.

The real GDP growth is estimated to hit 1.4% in 2016 underpinned by the 3.37% growth in the oil sector, as well as a slight increase of 0.51% in the government non-oil sector while the private non-oil sector increased by 0.11%. We believe that the government delay in paying the private sector dues by the end of 2015 led the slowdown in the private non-oil growth to 11 basis points only.

We believe the projected revenues for 2017 are based on an oil price in the range of USD 51 a barrel, according to our calculations. We expect the average oil production to stand at 10.06 million barrels a day down from an average of 10.39 million barrels per day in 2016 as stipulated by the recent agreement of OPEC members to curb oil production. The increase in selling prices will offset the reduction in production.

The Saudi government also disclosed the launch of the fiscal balance program which aims to achieve a balanced budget by 2020 through (A) Strengthening the sustainability of government revenues through oil revenues development, (B) The improvement and rationalization of capital and operational expenditure. (C) Removal of unguided subsidies to rationalize consumption, (D) The sustainability of economic growth in the private sector, (E) The industrial sector support.

This would help raise the levels of liquidity in the banking sector and free finance for the private sector at favorable rates to meet the requirements of the National Transformation Plan. It should be noted that the ratio of loans to deposits stood at 83.1% at October 2016 and the interbank lending rate surged during the current year from 1.64% to 2.37%.

he new charges on foreign labor will raise the cost of operation starting from 2018 in the sectors which heavily rely on foreign labor, and will put pressure on inflation indicators as traders and producers pass the increase to consumers. In addition, A fee on dependents of expatriate workers will also be levied, but we expect its impacts to materialize starting from 2018 and will contribute significantly to the reduction of the number of foreign residents thus tightening the demand for goods and services.

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