Saudi Arabia to spend big after economy shrinks
RIYADH: Saudi Arabia said its economy contracted for the first time in eight years due to painful austerity measures as it announced record spending to stimulate growth.
The OPEC kingpin said gross domestic product for 2017 shrank by 0.5 per cent due to a drop in crude production in line with an agreement with major oil producers aimed at boosting prices.
Oil sector GDP fell 2.0 per cent in 2017, the ministry said
The last time the Saudi economy contracted was in 2009, when GDP fell 2.1 per cent after the global financial crisis sent oil prices crashing.
Riyadh also posted a higherthan-expected budget deficit in 2017 and forecast another shortfall next year for the fifth year in a row due to the drop in oil revenues.
It unveiled plans to spend more than ever in 2018 in a bid to stimulate the sluggish economic, saying it expects GDP to grow by 2.7 per cent.
The kingdom has set aside 978 billion riyals (US$260.8 billion) for expenditure, up 10 per cent on this year, said the finance ministry.
“The 2018 expansionary budget includes a number of new development projects,” said powerful Crown Prince Mohammed bin Salman, who oversees economic affairs.
The 2018 expansionary budget includes a number of new development projects.
“About 50 per cent of the new budget will be financed from nonoil sources,” he said, quoted by the official Saudi Press Agency.
The contraction comes as the world’s top oil exporter tries to cope with persistent budget deficits that began in 2014 when crude prices plummeted.
In the past four years, Riyadh posted a total of US$258 billion of budget deficits, drew on US$240 billion of its reserves and borrowed around US$100 billion.
King Salman said the Gulf country would “continue to decrease its dependence on oil to reach just 50 per cent” of total revenues.
The finance ministry estimated a deficit of US$52 billion for 2018.
It said the deficit for 2017 came in at US$61.3 billion, or 9.2 per cent of GDP, and higher than the expected US$53 billion.
The shortfall is still 25 per cent lower than the US$82 billion posted in the previous year.
King Salman told the cabinet that Saudi Arabia expects to continue posting deficits through to 2023.
Revenues in 2018 were estimated to be 783 billion riyals (US$208.8 billion), up 13 per cent on the previous year’s projections.
Actual revenues for the current fiscal year rose by a healthy 34 per cent compared with 2016 to US$185.6 billion due a sharp increase in both oil and non-oil revenues.
Capital Economics said Saudi Arabia had loosened up its purse strings.
“After the harsh austerity of 2015-16, the government appears to have loosened fiscal policy in 2017,” said the London-based think-tank.
It was expected to continue doing so next year, it added.
Actual non- oil revenues collected in 2017 reached 256 billion riyals (US$68.3 billion), a 38 per cent rise on the previous year, reflecting the impact of hiking prices and imposing fees.
Riyadh has resorted to a string of austerity measures to contain spending and imposed a variety of subsidy cuts and rises in prices of services.
Prince Mohammed, the architect of the ‘Vision 2030’ programme of reforms for a post-oil era, has announced a host of mega projects, including a futuristic megacity
Crown Prince Mohammed bin Salman
with robots and driverless cars, which require about US$500 billion in investments.
The cornerstone of the reforms is an initial public offering of nearly five per cent of national oil giant Aramco planned for next year.
Prince Mohammed has also been behind stunning decisions to allow women to drive and to lift a 35-yearold ban on cinemas.
Last month, the heir to the throne launched a wide-ranging crackdown on dozens of elites, ostensibly to tackle corruption, but experts say it was also a way of consolidating his grip on power.
Since 2015, the ultra-conservative kingdom has introduced a series of price hikes on fuel and electricity.
It has also imposed fees on expats and is preparing to introduce value-added tax in the new year.
The finance ministry said unemployment among Saudis rose to 12.8 per cent in June, up slightly on last year.
The government has allocated US$13.9 billion for the cash transfer programme called the Citizen Account to compensate the needy for hiking prices. — AFP