Saudi boosts spending in 2019 budget to spur economy

Saudi Arabia plans to increase state spending by 7 per cent in 2019 to spur economic growth that has been hurt by low oil prices.

Under December's budget, spending is projected to rise to an all-time high of SAR1.106 trillion ($295bn), from an actual SAR1.030 trillion in 2018.

“We are determined to go ahead with economic reform, achieving fiscal discipline, improving transparency and empowering the private sector,” monarch King Salman said in a nationally televised speech. The Saudi economy shrank in 2017 and the government estimates it grew 2.3 per cent in 2018 - much slower than the boom years early this decade.

“The budget focuses on boosting activity after years of fiscal consolidation and weak growth,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank, according to Reuters. The ramp-up in spending appears to mark a slowing of Saudi Arabia's drive to cut a big state budget deficit caused by the slump in oil prices in recent years. The deficit, which the government has pledged to eliminate by 2023, came in at SAR136bn last year, well below the SAR195bn gap originally projected for 2018.

The shrinking deficit was partly linked to rising oil revenues.

Brent oil averaged around $73 a barrel last year, up from $54 in 2017.

However, the kingdom has also boosted non-oil revenues with austerity steps such as the imposition of a 5 per cent value-addedtax at the start of 2018.

Next year, the government projects only a minimal shrinking of the deficit to SAR131bn.

Malik said her assumptions for Saudi gross domestic product and oil revenue suggested the deficit might widen in 2019 to more than 7 per cent of GDP from near 4 per cent.

Although the kingdom does not disclose its oil price assumptions, some economists have suggested the 2019 budget implied Brent crude would average $70-71 per barrel with oil production at 10.2 million barrels per day.

The government's projections see growth in the non-oil part of the economy increasing to 2.5 per cent this year from 2.3 per cent in 2018.