We noticed you're blocking ads.

Keep supporting great journalism by turning off your ad blocker.

Questions about why you are seeing this? Contact us

Font Size

- Aa +

Sun 30 Sep 2018 03:09 PM

Font Size

- Aa +

Saudi Arabia plans 10% increase in spending to spur economic growth

Despite efforts to expand the economy, growth will remain under 2.5 percent during the next three years

Saudi Arabia plans 10% increase in spending to spur economic growth
Public spending is expected to reach 1.106 trillion riyals ($295 billion) in 2019, 100 billion riyals ($27bn) more than what the government projected last year.

Saudi Arabia plans to increase spending next year more than initially forecast as authorities take advantage of higher oil prices to spur economic growth and reduce unemployment.

Public spending is expected to reach 1.106 trillion riyals ($295 billion) in 2019, 100 billion riyals ($27bn) more than the government had projected last year, Finance Minister Mohammed Al-Jadaan said on Sunday. Authorities expect spending to rise to 1.170 trillion riyals by 2021, he said, citing initial estimates.

“I hope that the private sector sees in the contents of this statement a clear message of the government’s determination to support economic growth,” he told reporters in Riyadh.

"We wanted to make sure that the economy grows and the private sector is enabled and therefore creates jobs for our youth.”

The world’s biggest oil exporter is grappling with an economic slowdown that followed the collapse of crude prices in 2014. Measures to reduce the budget deficit and raise non-oil revenue weighed on business sentiment, pushing the unemployment rate among Saudi nationals to its highest level in more than a decade.

Significant challenge

Much of next year’s expected economic growth will be led by the oil industry, “which is unlikely to create significant jobs,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank. “The labour market will remain one of the largest economic challenges.”

The government expects gross domestic product to expand 2.1 percent this year after contracting 0.9 percent in 2017. Growth, however, will stay below 2.5 percent through 2021, estimates show. That compares with an average of 4 percent between 2000 and 2014, according to International Monetary Fund data.

Bilal Khan, a senior economist at Standard Chartered Plc, said actual growth might be “slightly higher than these estimates over the medium term as oil output may increase.”

“Unemployment should stabilise around current levels and then gradually start coming down over the next couple of years,” he said.

Other figures released by the government show:

  • Revenue is expected to rise to 978 billion riyals in 2019 from 882 billion in 2018
  • 2020 revenue is estimated to reach 1.005 trillion riyals, rising to 1.045 trillion riyals a year later.
  • The budget deficit is seen narrowing to 3.7 percent of GDP in 2021 from 5 percent this year
  • Public debt is projected to increase to 25% of GDP from 20% in 2018

Demand for Saudi oil is expected to increase as U.S. sanctions against Iran take some of its barrels off the market. Saudi Energy Minister Khalid Al-Falih told reporters in Algiers on Sept. 23 that demand for Saudi crude in October could range from 10.5 million to 10.6 million barrels a day, and the kingdom is able to supply this. It produced a near-record 10.4 million barrels a day in August, the country told OPEC.

Even though Saudi officials have made assurances that the kingdom can fill the gap, oil has already passed the $80 mark. Brent crude, the international oil benchmark, surged on Friday to a fresh four-year high above $83 a barrel.

Higher oil prices mean Saudi revenue estimates are “very conservative,” according to Mazen Alsudairi, head of research at Al Rajhi Capital Co. in Riyadh.

Non-oil growth

To reduce unemployment among Saudi nationals, the kingdom’s non-oil economy needs to expand between 3 and 4 percent a year, he said. That level is unlikely to be achieved before 2022, according to IMF projections.

Al-Jadaan said authorities expect “healthy growth” in both oil and non-oil industries. He said the government remains committed to supporting private businesses.
Addressing questions about delayed payments to government contractors, the minister said that a committee formed to deal with the problem had resolved the majority of the disputes it was overseeing and paid what was due in those cases.

“The rest might finish in the courts,” he said, adding that “in general, it’s clear in the numbers that the government is paying on time.”

Arabian Business digital magazine: read the latest edition online