Once again, Saudi Arabia’s dependence on oil revenue is taking a toll on its national budget.
The world’s largest crude exporter expects its budget deficit to widen to 187 billion riyals ($49.8bn) in 2020 from an expected 131 billion riyals ($35bn) this year as lower oil prices hit revenues, said Finance Minister Mohammed al-Jadaan.
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This means Saudi Arabia’s budget deficit in 2020 would grow to 6.5 percent of its gross domestic product (GDP) from a projected 4.7 percent of GDP this year.
Al-Jadaan told a news briefing on Thursday that revenues would fall to 833 billion riyals ($222bn) in 2020 from 917 billion riyals ($245bn) projected for 2019.
Saudi Arabia, the largest economy in the Arab world, has suffered in recent years because of low oil prices and austerity measures aimed at reducing its deficit.
It has restrained crude production by more than the level called for by an OPEC-led supply deal to support oil markets, but concern about slowing oil demand and the weakening global economy have kept prices under pressure.
The International Monetary Fund (IMF) said earlier this year that Riyadh would need to tighten its fiscal policy to offset the widening deficit.
Although Riyadh has increased government expenditure this year to spur growth, the IMF said “the fiscal pendulum had swung too far toward supporting near term growth and reform implementation,” suggesting the government is spending beyond its means.
Expenditure is expected to decrease marginally to 1.02 trillion riyals ($270bn) in 2020 from an estimated 1.05 trillion ($280bn) in 2019, the minister said on Thursday, in advance of the final budget announcement later this year.
“The 2020 budget will continue to work on raising efficiency of managing the public finances to maintain fiscal sustainability and achieve the highest returns on spending,” Jadaan said.
“We will continue to support mega projects, increase spending efficiency and empower the private sector to create jobs,” he added.
Real GDP growth is expected at 2.3 percent next year compared with a projected 0.9 percent in 2019, al-Jadaan said, pointing to government efforts to boost non-oil sectors such as tourism, entertainment, sports, financial services and logistics.
The IMF has recently forecast Saudi Arabia’s economy to grow by only 0.2 percent this year and 2.2 percent next year after taking inflation into account.
Al Rajhi Capital said in a research note that the government would need oil prices at $71 per barrel to balance its budget next year.
Brent futures stood at $60.20 a barrel on Friday.
Most of Saudi Arabia’s future growth is likely to be fuelled by debt. Riyadh has borrowed extensively over the past few years to refill its coffers.
Next year, it expects public debt to increase to 754 billion riyals ($201bn), or 26 percent of GDP, compared to 678 billion riyals ($181bn), or 24 percent of GDP, projected for 2019, Jadaan said.
According to Al Rajhi Capital, in the next few years “around 60 percent of future deficits are expected to be met through debt and the rest from reserves.”