Saudi reduces deficit by a third

Saudi Arabia yesterday unveiled a budget statement that outlines plans to increase spending in 2017 as well as measures designed to drastically cut the deficit.

The fiscal deficit has been reduced by one third and is forecast at 198 billion Saudi riyals ($53 billion) next year which is below the high of 366 billion Saudi riyals ($97.6 billion) seen in 2015. The deficit is “now manageable” and the country is moving in the right direction to eliminate the deficit altogether by 2020.

Commenting on the statement, King Salman said: “Our economy is firm and it has sufficient strength to cope with the current economic and financial challenges and this is the result of the prudent fiscal policies taken by the state.”

The Saudi government’s plan for cutting the deficit includes a number of measures. It plans to phase out its costly subsidies on energy, although low-income citizens will receive “direct cash support” to help them manage.

It will also introduce “minimal” fees on foreigners gradually up to 2020, the Saudi Finance Minister Mohammed Al-Jadaan told reporters in Riyadh.

The finance minister ruled out income taxes on Saudi nationals, foreigners or company revenues.

The minister added that the Saudi government had paid all outstanding dues to private sector firms as the beginning of December. Any claims submitted in the last three weeks will be paid in two months’ time.

In 2016, Saudi Arabia’s total revenues are expected to reach 528 billion Saudi riyals ($141 billion), and are forecast to rise to 692 billion Saudi riyals ($185 billion) next year. Oil revenues for 2017 are estimated at 480 billion Saudi riyals ($128 billion), 46 per cent higher than the 2016 projections, while non-oil revenues are estimated at 212 billion Saudi riyals ($57 billion), a 6.5 per cent increase.

The optimistic forecast will nevertheless be met with caution as the country is engaged in a war with in neighbouring Yemen. Security costs in the foreseeable future will continue to rise. The budget statement plans to increase defence spending by 6.7 per cent in 2017 to reach 191 billion riyals ($51 billion)