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(Bloomberg) -- Saudi Arabia unveiled its much-anticipated budget for 2017, the first of its long-term plan to end the economy's dependence on oil. Here are its key features.
- Spending:
- 890 billion riyals in 2017
- Spending in 2016 is estimated at 825 billion riyals, 1.8 percent below budget; total expenditure expected by the end of 2016, including late due payments for previous years, is 930 billion riyals
- Military spending expected at 191 billion riyals in 2017 versus 205 billion in 2016
- Kingdom to spend 268 billion riyals on National Transformation Plan through 2020; of which 42 billion allocated in 2017
- "This seems to be a broadly neutral budget,” said Jason Tuvey of Capital Economics in London. “The government will take a break from austerity in 2017 to resume it in 2018.”
- Deficit:
- 2017 budget deficit projected at 7.7 percent of gross domestic product, or 198 billion riyals
- 2017 budget deficit is expected to be 33 percent lower than 2016
- Deficit to be financed by issuing debt and drawing from reserves
- 2016 deficit estimated at 11.5 percent of GDP, or 297 billion riyals, compared with expected 13 percent. Deficit was 362 billion riyals in 2015
- The 2016 number “sends a strong message that fiscal discipline is taken seriously and on the path to a balanced budget by 2020,” said John Sfakianakis, director of economic research at the Gulf Research Center Foundation.
- Revenue:
- 692 billion riyals in 2017
- Revenue for 2016 estimated at 528 billion riyals, 2.7 percent above target
- "Realized returns from other sources" led to revenue increase of 15 billion riyals over 2015, the budget document said, without giving details
- Oil revenue projected at 480 billion versus 329 billion in 2016
- 2017 oil revenue “looks a bit optimistic especially in light of the production cuts that Saudi Arabia would have to implement as part of the OPEC agreement,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.
- Non-oil economy:
- Non-oil revenue in 2017 expected to be 212 billion riyals, up from estimated 199 billion in 2016
- Non-oil revenues in 2016 were boosted by the growth in transfers from the Saudi Arabian Monetary Authority -- 62.2 billion riyals versus 35.4 billion in 2015
- Government is focused on increasing non-oil revenue, expects it to account for 50 percent of total by 2020
- “I'm surprised that the non-oil economy expanded this year given the squeeze in government spending,” said James Reeve, the London-based deputy chief economist at Samba Financial Group. “It may be that some relatively autonomous sectors, such as petrochemicals, had a better year than we were anticipating.”
- Oil Prices:
- Government is “very optimistic” about oil-price recovery in 2017, Oil Minister Khalid Al-Falih said
- 2017 budget based on conservative oil-price assumptions, Al-Falih said
- Kingdom to link fuel prices to global costs in 2017-2020
- Subsidies:
- Government will launch cash-transfer program for low- and middle-income households; citizens can register from February and program will start before energy increasing energy prices in 2017
- Cash-transfer program to cost 25 billion riyals in 2017, rising to 60 billion by 2020, Deputy Labor and Social Development Minister Ahmed al-Humaidan said
- Saudi industries, mines, energy to get more government support in 2017
- Taxes:
- “Selective taxes” on tobacco, soft and energy drinks to be imposed during 2017
- Government to introduce 5 percent value-added tax in 2018
- Government has no plans to impose taxes on nationals and residents or to tax Saudi companies
- Government to introduce a "small" fee on foreign residents, Finance Minister Mohammed Al-Jadaan said
- Debt:
- Public debt estimated at 12.3 percent of GDP in 2016. Total debt reached 316.5 billion riyals, including 213.4 billion in domestic debt
- Debt service in 2016 estimated at 5.4 billion riyals, to increase to 9.3 billion in 2017
- Spending plan envisions three scenarios. “Base scenario" sees public debt at 419 billion riyals in 2020, while the “very conservative" scenario sees it at 737 billion. A third “conservative" scenario sees it at 590 billion
- Public debt ceiling set at 30 percent by 2020
- GDP:
- Saudi GDP estimated to grow 1.4 percent in 2016; oil economy by 3.37 percent
- Public sector GDP growth seen at 0.51 percent in 2016; private sector GDP growth at 0.11 percent
- “The 2017 spending number should be pro growth and will add to market confidence,” said Sfakianakis at the Gulf Research Center Foundation.
To contact the reporters on this story: Ahmed Feteha in Cairo at afeteha@bloomberg.net, Zainab Fattah in Dubai at zfattah@bloomberg.net. To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net, Stuart Biggs, Mark Williams
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