Saudi budget to boost spending, raise domestic fuel prices

Saudi Arabia’s state budget for 2017, which is expected to be released on Thursday, will boost spending to support economic growth while raising domestic energy prices to ease the government’s subsidy burden, sources told Reuters.

The government is expected to announce its budget deficit fell sharply this year to SAR297bn ($79.2bn), the sources, who are familiar with the budget planning, said on Wednesday.

That would allow Riyadh to claim substantial success in its battle to reduce a huge deficit caused by low oil prices. The deficit totalled a record SAR367bn in 2015, and the original budget for this year projected a SAR326bn gap.

The finance ministry did not respond to a request for comment on Wednesday. The sources said the numbers which they quoted were not final and could still be modified, but that they did not expect any major changes.

Government revenues totalled SAR528bn in 2016, slightly higher than the SAR514bn originally projected, while spending was SAR825bn, slightly lower than the SAR840bn in the original plan.

The 2017 budget plan sets spending of SAR890bn, 6 per cent higher than the original projection for spending in 2016. Revenues next year are projected at SAR651bn, up from SAR514bn.

The higher spending would permit gross domestic product growth to accelerate to 2.0 per cent in 2017 from an estimated 1.7 per cent this year, the sources said.

Revenues may be boosted next year by higher oil prices. After a global deal among oil producers to cut output to prop up prices, Brent crude oil is trading near $56 a barrel, up from an average of under $45 so far this year.

The 2017 spending and revenue numbers imply Saudi Arabia would reduce its deficit further next year to SAR239bn. The government has said it aims to eliminate the deficit by 2020.

The 2016 budget raised domestic prices for fuels including gasoline, cutting the government’s subsidy burden, and the 2017 budget will increase energy prices further, the sources said.

They did not specify the size of the increases or which forms of energy would be affected. However, they said energy product prices would eventually be linked to global market prices through a formula, which they did not disclose.

The neighbouring United Arab Emirates has linked its domestic fuel prices to international prices but gasoline remains much cheaper than it is in most other countries.

The budget plan also includes a new programme to provide financial aid to low- and middle-income Saudis who have been hurt by austerity policies, the sources said, without disclosing details.