SAUDI ARABIA MAY BOOST BUDGET SPENDING NEXT YEAR
Further fiscal expansion needed to support development and revive growth, says finance minister
SAUDI Arabia is considering a more expansionary budget than planned for next year, said Finance Minister Mohammed Al-Jadaan, as authorities seek to support an economy struggling under the weight of austerity cutbacks.
Authorities were already planning an expansionary budget, “and we are considering even a potential further expansion”, said Al-Jadaan in an interview at the Future Investment Initiative, here. “We think the economy requires that support and development requires that support.”
The biggest Arab economy contracted two quarters in a row this year after the kingdom cut its crude output to support prices. Growth in nonoil industries was too slow to pick up the slack as Saudi Arabia struggles with the impact of spending cuts.
The drive to repair public finances is part of a larger programme to overhaul an economy too dependent on oil.
The International Monetary Fund told Saudi officials this year that they can afford to slow down the pace of austerity to avoid crippling growth.
“They are saying you don’t need to do what you need to do in two years or three years, relax it,” said Al-Jadaan. “We are doing that.”
The drop in oil prices in 2014 caused Saudi Arabia’s budget deficit to balloon to more than 15 per cent of gross domestic product. To finance the shortfall this year, the kingdom raised more than US$20 billion (RM85 billion) from international bond and sukuk sales.
Al-Jadaan said he didn’t see the government selling more international bonds this year, but local sales were likely. “We will maintain the local market issuance just to make sure we are developing the debt market.”
Future international sales “are not limited to US dollars, but today we don’t see the need to do anything but US dollars”, he said. “There is significant demand on Saudi papers and we just need to make sure we issue at the right price.”
The government was still planning a further round of subsidy cuts later this year, he said. Officials proposed to start a cash transfer programme called the Citizen’s Account before the cuts to compensate Saudis for the impact on their pockets, he said.
The impact of the decision on the budget would be “very negligible” as the additional cost was made up for by extra efficiency in spending, he said.
Reducing the government wage bill “will continue to be a goal”, but rather than cutting salaries, the government would rely on hiring fewer people to replace those who have retired, he said.