Saudi Arabia deficit widens ahead of Aramco sale
SAUDI ARABIA will reduce spending in 2020 as the budget deficit widens to US$49 billion amid sluggish oil prices and deeper curbs on oil production by the heavyweight producer.
King Salman announced Monday expenditures will reach US$272 billion next year, a nearly eight per cent decrease from last year’s record-high spending estimate of US$295 billion.
Saudi Arabia anticipates US$222 billion in revenue next year, down 14.6 per cent from the US$260 billion estimated for 2019.
The kingdom has been grappling with a deficit since oil prices first plunged in 2014. It has increased spending during that time, though, by drawing from its robust fiscal reserves to cushion the impact of austerity measures like new taxes and subsidy cuts, and to expand citizen welfare programmes and monthly allowances for civil servants, students and soldiers.
This year’s curb on expenditures marks a departure from the march towards greater spending, but the government says its cash assistance programme, started last year for lower-income Saudi families, will continue.
For years, one of the largest expenditures has been on public-sector wages. The government is looking to the private sector, however, to create the needed new jobs for Saudis.
Analysts say Saudi Arabia needs oil prices at least above US$70 a barrel to balance its budget. Brent crude traded at US$64 on Monday.
To diversify away from its reliance on oil revenue, the government aims to generate billions of dollars from the partial sale this week of state oil company Aramco. The IPO is also seen as a means to attract foreign investment.
The sale is expected to break the record for the biggest flotation ever when trading commences on the Saudi stock exchange Wednesday. A lead bank advising Aramco on the IPO said Monday the company is selling a 1.7 per cent stake for US$29.4 billion following strong interest by local Saudi funds.
“God willing, we will continue to grow our economy and to diversify our income, like for example through investments, such as putting Saudi Aramco on the stock market,” the king said while announcing the budget.