Saudi Arabia's economic woes have come to light after the kingdom released its latest budget which showed that the deficit will widen to 12 per cent of gross domestic product (GDP) in 2020. The country plans to cut spending by 7.5 per cent next year as turmoil in the global oil market caused by the spread of the coronavirus pandemic puts pressure on state finances.
The details were presented by Riyadh's Ministry of Finance in yesterday's preliminary budget. Government spending is expected to decrease to $263.94 billion from its current $285.27 billion.
The kingdom expects a budget deficit of about 12 per cent this year, falling to 5.1 per cent next year, the budget statement said. It is estimated that the real GDP will see a decline of 3.8 per cent in Fiscal Year 2020.
The budget deficit is expected to narrow to 5.1 per cent of economic output next year and three per cent in 2022, according to the statement.
"The outlook is better than what was anticipated during the first half," the ministry said according to a report in Bloomberg. In 2021, "the government seeks to preserve the fiscal and economic gains achieved in recent years and to achieve the goals of stability, fiscal discipline and spending efficiency."
Officials say they'll rely on extra borrowing to cover the deficit, expanded by the double crisis of energy market turmoil and the global coronavirus pandemic. A combination of crashing demand and Saudi overproduction to undercut US shale saw the price of oil crash to its lowest level in decades.
Commenting on Saudi Arabia's debt Mazen Al-Sudairi, head of research at Riyadh-based Al Rajhi Capital, said: "Total debt has surged to over 30% of GDP this year, and the government wants to keep this at around that level, so they need to keep the deficit under control over the next few years."
Economic forecasters were cited in Bloomberg saying that "reaching the 2023 deficit target looks challenging, including with the oil price uncertainties."