Saudi Arabia set to boost spending in 2019

Saudi Arabia is set to increase spending in 2019 when the budget is announced this week, despite a recent drop in oil prices.

“The government will continue to focus on supporting economic activity and we believe the budget will likely remain expansionary,” Monica Malik, chief economist at Abu Dhabi Commercial Bank (ADCB), told Arab News.

A pre-budget statement in September predicted the budget would be SR1.11 trillion ($300 billion), up 13 percent on 2018. It also forecast government revenue would be SR978 billion in 2019, up 11 percent on estimates for this year.

“Given the soft trend in non-oil activity and the need to progress with key investments, we believe government spending will increase,” Malik added.

Oil prices

But a downturn in oil prices plus a larger-than-expected oil production cut agreed by OPEC and its allies this month, means Saudi Arabia will be unlikely to reach its budget deficit target of 4.1 percent in 2019.

A 2018 budget announcement last December predicted this year’s deficit would be 7 percent of the GDP, but it is more likely to be around 5 percent, September’s pre-budget statement revealed.

“GDP growth is heavily influenced by changes in oil production,” said Jason Tuvey, Middle East economist at London’s Capital Economics, which forecasts Saudi’s economy will grow by 3 percent this year, up from September’s official estimate of 2.1 percent. “Growth picked up sharply in the latter part of 2018.”

Revenue forecasts

For Saudi Arabia to achieve its 2019-21 revenue forecasts, it will require a Brent crude price of $69-74 and daily oil production of about 10.5 million barrels, ADCB estimates.

The government has introduced reforms to diversify its income, including a 5 percent value-added tax.