Saudi Arabia’s 2017 Budget Increases Spending in Line with Vision 2030 Priorities

Saudi Arabia’s 2017 budget shifts increases spending to fulfill the goals of the National Transformation Program and Vision 2030.  Oil prices have reduced government spending in previous years, yet the Saudi Government expects the price of oil to rise in 2017 and has adjusted its budget accordingly.  The energy pricing reform program will create additional revenue despite some new allowances for citizens such as the Cash Transfer Program (CTP) that will help protect middle- and low-income families from higher energy prices.  The budget also seeks to generate additional savings through programs that promote efficiency and accountability.  The Council of Economic and Development Affairs (CEDA) has created entities to oversee this transition, including the Spending Rationalization Office, the National Center for Performance Measurement (Adaa), the Nonoil Development Unit, the Delivery Unit, and CEDA’s Project Management Office. 

The total 2017 budget expenditure is $237.3 billion (SR890 billion), an 8 percent increase from 2016.  The Saudi Government set aside an additional $11.2 billion (SR42 billion) for National Transformation Program (NTP) initiatives.  Total revenue is projected at $184.5 billion (SR692 billion), a 31 percent increase from 2016’s projection.  The budget expects a 46 percent increase in oil revenue for a total of $128 billion (SR480 billion) and a 6.5 percent increase in nonoil revenue to reach an estimated $56.5 billion (SR212 billion).  Further, oil is projected to represent 69 percent of total Saudi revenue in 2017.  Saudi Arabia’s budgeted deficit is expected to be $52.8 billion, representing 7.7 percent of fixed-price GDP and down 33 percent year-on-year.  The Kingdom is expected to use its reserves and debt instruments to finance the deficit.

The largest budgetary allotment of roughly $53.3 billion (SR200 billion) was awarded to Education.  Key projects include the development of King Abdullah Bin Abdulaziz Public Education Development Project, 1,376 schools and facilities, girls’ colleges, The Custodian of the Two Holy Mosques Scholarship Program, and various NTP initiatives.  The Scholarship Program currently serves over 207,000 students.  The second highest budgetary allocation is the $50.9 billion (SR191 billion) for defense and security, where the funds will be used for equipment, weapons, ammunition, installations, and facilities to boost capabilities. Security and Regional Administration received $25.8 billion (SR96.7 billion) to establish naval bases, support the second phase of the Unified Security Liaison (TETRA) network and the Ministry of Interior, and develop the Custodian of the Two Holy Mosques project, a 5-year security improvement plan that includes 1,350 security headquarters, 5 residential complexes, two medical cities, and four juvenile detention facilities.

Spending on health and social increased nearly $5 billion (SR19 billion) to reach a total of $32 billion (SR120 billion).  Saudi Arabia is currently building and upgrading 38 hospitals, two medical cities, and sports cities in addition to projects serving social development and poverty reduction.  The Public Programs Unit, which invests in development projects for Saudi citizens, was allocated $28.7 billion (SR107.6 billion), a roughly $6.1 billion (SR23 billion) increase from 2016.

Funding to other key sectors include infrastructure and transport with $13.9 billion (SR52 billion), municipality services with $12.8 billion (SR48 billion), economic resources with $12.5 billion (SR47 billion), and public administration with $7.1 billion (SR26.7 billion).  Compared to 2016, infrastructure and transport received an additional $4 billion (SR15 billion), municipality services an additional $6.1 billion (SR23 billion), and economic resources an additional $2.4 billion (SR9 billion).  NTP initiatives received $11.2 billion (SR42 billion), an increase from 2016’s $2.4 billion (SR9 billion).  Saudi Arabia is expected to invest an additional $57.9 billion (SR217 billion) in the NTP from 2018-2020.

As a result of decreased oil prices, Saudi Arabia financed its budget through reserves and $53.4 billion (SR200.1 billion) worth of local and international debt instruments.  Over the course of the next four years, the Kingdom aims to achieve a credit ranking of AA2 and prevent the debt from exceeding 30 percent of GDP.  Debt issuance and currency denomination diversification will change as needed, depending on international market considerations.  Saudi Arabia will diversify debt both within and outside the country through tools such as sukuk bonds and raise additional debt with appealing rates in other markets.  Public debt estimates range from $111.7 billion (SR419 billion) to $196.5 billion (737 billion) by 2020.

The Kingdom aims to have a balanced budget by 2020 by increasing efficiency, fiscal discipline, and nonoil revenue.  The Ministry of Finance established the General Fiscal Unit, which aims to monitor and enforce the compliance of budget ceilings.  It will increase transparency and efficiency, strengthen accounting practices, and invest in projects that will benefit Saudi citizens.   

The CTP will cost $6.67 billion (SR25 billion) in 2017 after energy price hikes and total $16 billion (SR60 billion) by 2020.  New taxes in 2017 on soft drinks, energy drinks, and tobacco and a tax for foreign residents will lead to new revenue for the Kingdom.  The Saudi government will spend more to support local industry, mining, and energy initiatives.

Economic Review of 2016    

As of December 2016, the Saudi FY2016 budget deficit will have decreased to roughly $79.2 billion (SR297 billion), far lower than 2015’s peak of $97.6 billion (SR366 billion).  Total national debt is approximately $84.4 billion (SR316.5 billion), or 12.3 percent of projected fixed-price 2016 GDP.  This represents a significant increase from 2015’s $37.9 billion (SR142 billion) in debt. 

Government spending is projected to be $220 billion (SR825 billion), a 1.8 percent decrease from the projected $224 billion (SR840 billion) and a 15.6 percent decrease from 2015’s $260.8 billion (SR978 billion) expenditure.  Total expenditure by the end of 2016 is expected to reach $248 billion (SR930 billion), which includes $28 billion (SR105 billion) liabilities from previous years.

Saudi Arabia’s 2016 revenue is anticipated to reach $140.8 billion (SR528 billion), a 2.7 percent increase from the initial $137 billion (SR514 billion) projection.  Nonoil revenue outpaced its $48.3 billion (SR181 billion) prediction with a value of $53 billion (SR199 billion).  Some of the notable increases in revenue are SAMA returns $16.6 billion (SR62.2 billion), a $7.2 billion (SR26.8 billion) increase; tobacco tariffs of $1.28 billion (SR4.8 billion); and returns from other undisclosed sources totaling $4 billion (SR15 billion).  Oil revenue represented 62 percent of total revenue in 2016.

In fixed prices, Saudi Arabia’s GDP has grown an estimated 1.4 percent to reach $688 billion (SR2.581 trillion).  Projected growth came from increases in the oil sector with 3.37 percent, the government sector with .51 percent, and the private sector with .11 percent.  The highest growth rate in the Kingdom came from oil refining, which grew 14.78 percent.  The GDP deflator of the private nonoil sector is expected to grow nearly 1 percent compared to 2015, and the General Cost of Living Index grew by 3.4 percent.

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