Saudi Arabia announced its budget deficit narrowed in 2017 to below 10 percent of economic output for the first time since the collapse in oil prices battered public finances, as the kingdom prepared to unveil what is expected to be an expansionary budget for next year.
The shortfall dropped to 8.9 percent of gross domestic product from almost 13 percent in 2016, the official Saudi Press Agency reported late on Monday, citing Finance Ministry official Yarub al-Thunyan. The decline is in line with the median estimate of 11 economists surveyed by Bloomberg.
A smaller deficit would be a welcome boost for the kingdom as it grapples with lower oil revenue after prices of crude plummeted in 2014, causing the budget deficit to surge to about 15 percent of GDP the following year. In response, authorities cut spending and introduced austerity measures including cuts to generous subsidies.
While the policies helped reduce the deficit, they also caused the worst economic slowdown since the global financial crisis. The Saudi economy is expected to contract 0.5 percent this year, according to the latest Bloomberg survey of 14 economists conducted this month.
Saudi officials have said next year’s budget, set to be announced on Tuesday, will focus on measures to bolster growth and offset the impact of planned measures such as value-added taxation and additional cuts to fuel and electricity subsidies. The balance is crucial to the success of Crown Prince Mohammed bin Salman’s plan to overhaul an economy long dependent on oil revenue and government spending.
Last week government announced a plan to spend 72 billion riyals ($19 billion) over the next few years to boost private-sector growth. A cash transfer program designed to shield needy Saudi families from the impact of subsidy cuts will start this month, and officials said they are unlikely to rush to balance the budget by 2019 as initially planned.