Riyadh, Dec 22, 2016 (AFP) – Saudi Arabia on Thursday releases its first budget since announcing a wide-ranging economic reform plan after collapsed oil prices led to one of the highest deficits in the developing world.
“Tough measures” including subsidy cuts are expected as the kingdom seeks to balance the books by 2020, the Arab News reported.
The world’s biggest oil exporter froze major building projects, cut cabinet ministers’ salaries, and imposed a wage freeze on civil servants in the wake of last year’s record deficit, which reached $97 billion (93 billion euros).
Analysts say that Riyadh’s deficit of 15 percent of GDP is one of the largest among emerging markets.
Sources cited by Arab News said the budget is expected to cut costly utilities subsidies for the second consecutive year, while Bloomberg News said another increase in fuel prices was also under consideration.
The government made unprecedented cuts to fuel and utilities subsidies last year in a country long-accustomed to some of the cheapest petrol prices in the world.
A year of cutbacks left retailers complaining of lower sales and residents said they had less money to spend.
“Given the opaqueness of policy announcements, the budget will provide investors with an opportunity to gauge the government’s commitment to fiscal austerity,” London-based Capital Economics wrote in a pre-budget briefing.
Oil prices, which were above $100 a barrel in 2014, sank below $40 in 2016 but recovered toward the end of this year and traded Thursday below $55.
The plunge in global oil prices led Riyadh to intensify economic reform efforts, which are being led by King Salman’s son, Deputy Crown Prince Mohammed bin Salman, 31.
In April the prince released the Vision 2030 programme for diversifying the oil-dependent economy.
At its heart is a plan to float less than five percent of state oil giant Saudi Aramco on the stock market, with the proceeds helping to form what will be the world’s largest state investment fund, holding about $2 trillion in assets.
The IPO could take place in 2018 and would be the biggest in history.
Under targets to be met by 2020, the government aims to cut the share of public wages in the budget from 45 percent to 40 percent, decreasing the total cost of state salaries from 480 billion to 456 billion riyals ($128 billion-$122 billion).
Over five years the plan targets 200 billion riyals in savings through cuts to water and electricity subsidies.