Saudi Arabia plans spending cuts to trim deficit amid virus

Saudi Arabia plans to cut more than 7% in spending next year, finance ministry said, as region’s biggest oil producer seeks to trim a gaping budget deficit amid coronavirus pandemic and falling oil prices.

kingdom expects its deficit to hit $79.4 billion this year, according to a government budget statement released late Tuesday, an estimated 12% of country’s gross domestic product. By slashing spending to $264 billion next year, it hopes to bring its deficit down to 4.9% of country’s ecomic output.

For first time, budget did t offer a breakdown for oil and n-oil revenue because kingdom’s oil giant Aramco floated a sliver of its shares on Saudi stock market last year, said Finance Minister Mohammed al-Jaan.

Disclosing revenue forecasts could shed light on billions of dollars in dividends state-owned company continues to pay to shareholders despite a steep fall in revenue.

Almost all of dividend money goes to company’s majority owner, Saudi government, to help cover state spending.

Saudi Arabia has been grappling with a budget deficit since oil prices first plunged in 2014.

For years it increased public spending, drawing from robust fiscal reserves to cushion impact of austerity measures like new taxes and subsidy cuts.

With crude prices crashing to some $40 a barrel as virus cut demand, kingdom took more drastic measures, tripling its value-ded tax to 15% and stripping allowances for state workers.

Even as coronavirus vaccine trial results have nudged oil prices up toward $50, stoking hopes of ecomic recovery, kingdom’s planned 2021 budget cuts signal that petrostates in region will still struggle to balance ir budgets as prices remain depressed.

country’s break-even oil price for next year’s budget is $67.9 barrel, according to International Monetary Fund, far higher than current sales prices. State revenues are only expected to rise some 10% next year to some $226 billion.

Still, al-Jaan struck a cautiously optimistic tone, saying that country’s flush reserves allow it to “face crises world is currently witnessing” and that pace of growth will accelerate with demise of pandemic, especially with option of vaccine, and things will return to rmal. 

finance ministry projects GDP to grow 3.2% next year after Saudi ecomy shrank 5.4% amid pandemic according to IMF.

annual Saudi budget is watched closely because it offers one of clearest indicators of wher kingdom is on track with its Vision 2030 plans, Crown Prince Mohammed bin Salman’s blueprint to diversify ecomy away from oil by building up tourism, entertainment and mega-projects like Neom, a futuristic city in desert.

Price Mohammed said Tuesday that kingdom is pressing ahe with its Vision 2030 projects and tapping Public Investment Fund to pump billions into ecomy and create jobs.

Unemployment in kingdom has exceeded 15% this year, according to country's statistic ncy.

(IM CREDITS:AP)