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Saudi Arabia Proposed SR1.02 Trillion Drives More Privatization

Saudi Arabia’s government recently released a proposed annual budget that will allocate spending SR1.02 (equivalent to $272 billion US) within the next year. The budget is a significant push toward privatization as the budget deficit continues to grow.

The government is predicting total revenues for 2020 to hit SR833 billion. That still leaves SR187 billion in deficit spending. This amount totals approximately 6.4 percent of the country’s GDP. That accounts for an anticipated growth rate of 2.3 percent within the next year.

According to Saudi Finance Minister Mohammed Al-Jadaan, spending in 2020 will be less than it was in 2019, but the government is still determined to focus on the private sector. He stressed that this means taxes will not increase this year.

In a statement to the press, Al-Jadaan said, “Privatization is at the top of the government’s priorities. We will continue to support big projects and will continue to support promising projects. Enabling the private sector is the top priority of Vision 2030. We have more to come and our journey toward Vision 2030 demands it.”

During a cabinet meeting in Riyadh, King Salman released the figures and stated, “We are determined to continue implementing economic reforms, diversifying sources of income, including investing the proceeds of Saudi Aramco by the Public Investment Fund, optimizing the use of available resources, empowering the private sector, and raising the level of transparency and efficiency of government spending to boost growth and development rates.”

Chief economist at Abu Dhabi Commercial Bank, Monica Malik, told news reporters, “We believe that the revenue assumptions in the budget are realistic, both oil and non-oil.”

There have been increasing reforms throughout 2019 including key developments as a result of the record-setting public offering of Saudi Aramco as well as a push to increase tourism through fast-track visas.

Ms. Malik went on to add, “Despite the planned pullback in government spending, we expected to see a pickup in real non-oil GDP growth as investment activity strengthens. Spending by the PIF will be central for the higher investment activity.”

In attendance during this meeting were several Saudi banks, including SAAB, Samba, Bank Aljazira, NCB, and Alinma Bank. The Finance Minister also noted to attendees, “The finance ministry hosted a visit of international investors to coincide with this year’s budget announcement, underscoring the government’s desire to attract more overseas investment in the slipstream of the world’s biggest IPO. The group included a number of international investment companies, insurers, and asset managers including Goldman Sachs, Mayfair Bank, Etiqa Insurance, and Nippon Life Insurance Company, among others.”

A critical component of Vision 2030 involves reducing the Kingdom’s long-standing dependence on oil revenues. However, this commodity will continue to be a critical driver of spending for not just Saudi Arabia, but other key oil-exporting nations throughout the Arabian Gulf region.

These oil exporting nations have been working together since 2017 to cut production through OPEC+ and other producers. This includes Russia and it is meant to provide some stability and balance within the market as US shale producers increase their output.

Recently, the Kingdom was also directly responsible for reaching an agreement between the OPEC+ exporter nations to agree to continue cutting output levels, which would directly reduce the risk of providing an oversupply of oil to the global market.

As for the private non-oil sectors of the economy, a recent budget analysis determined positive growth rates throughout the first half of the year. Even the construction sector managed to report growth for the first time since 2015.

This has helped to bring down unemployment rates throughout Saudi Arabia to 12.3 percent. At the end of 2018, the unemployment rate was 12.7 percent. That reduction accounted for a 0.4 percent drop in unemployment amongst Audis.

The sector that will receive the largest share of government spending in 2020 will be education. SR193 billion has been allocated since over 500 schools have been opened within the past year.

According to Bryan Plamondon, an analyst for US-based IHS Markit, “The 2020 budget highlights rationalized spending with debt issuance and reserves helping to fill the gap from weaker revenues. We expect the Kingdom’s fiscal account will post wider deficits during 2020-21 as spending on Vision 2030 continues.”

Ministry of Finance Budgets & Financial reports

Budget statement of 2020 – English