Saudi spending cuts "over" as deficit narrows, says report

Austerity eases but 1% rise in non-oil sector “disappointing”, according to Capital Economics
By Sarah Townsend
Sun 14 May 2017 12:28 PM

Saudi Arabia has shrunk its budget deficit to 4.3 percent of GDP compared to 15 percent in the first quarter of 2016 – suggesting that the recent phase of big government spending cuts is “over”, a report claims.

The latest outlook for the kingdom from research firm Capital Economics points out that the narrowing of the deficit to SR26.2 billion ($7 billion) came largely on the back of a substantial rise in revenues – most notably a 115 percent jump in oil receipts.

While Saudi Arabia cut oil production at the start of this year as agreed in the OPEC deal, this was more than offset by a rebound in oil prices, the report said.

Citing new quarterly public finance figures issued by the government on Thursday, Capital Economics said a “paltry” 1 percent  year-on-year increase in non-oil revenues was “disappointing”, although it added that this was largely due to a drop in investment returns from the central bank SAMA (Saudi Arabian Monetary Agency) and sovereign wealth fund the Public Investment Fund.

The figures also revealed a reduction in government spending – total expenditure stood at SR170.3 billion ($45.3 billion) in the first quarter of 2017, down from SR174.7 billion ($46.5 billion) billion in the same period last year, and spending on subsidies and grants fell sharply, too.

However, the report noted that the reduction in spending, at 2.5 percent year-on-year, was much smaller than the falls of up to 25 percent recorded in 2015/16.

“In short, the big spending cuts seem to be over,” said Capital Economics. “The improvement in the budget position is a key reason why the authorities felt comfortable reversing cuts civil service benefits last month.

“We think there’s scope for austerity to be eased further in the coming months.”

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