Saudi Arabia to cut government spending, over record budget fall
Saudi Arabia is planning to slash government spending and issue more bonds as the kingdom faces record budget deficit because of plummeting oil prices.
According to Saudi Arabia’s finance minister, Riyadh, which is the biggest economy among Arab states and the largest oil exporter in the world, is facing an unprecedented budget deficit due to drastic fall in international oil prices, which have plummeted by over half in past year to below USD 50 a barrel, AFP reported on Sunday.
“We are working… to cut unnecessary expenditure,” Finance Minister Ibrahim al-Assaf told Dubai-based CNBC Arabia in Washington, where he is accompanying King Salman on a visit.
Assaf added that the kingdom has so far relied on its huge fiscal reserves to bridge the budget gap but more measures should be taken.
The minister declined to provide more details on the scale of the spending cuts, but insisted that key cuts would come about in education and health sectors without affecting the country’s infrastructure.
“There are projects that were adopted several years ago and have not started yet. These can be delayed,” Assaf added.
He noted that Saudi government is also planning to issue more conventional treasury bonds and Islamic sukuk bonds to “finance the budget deficit.”
According to figures released by the International Monetary Fund, the kingdom’s budget deficit will hit a whopping figure of USD 130 billion (117 billion euros) this year.
Based on the IMF’s forecast in July, the budget deficit can be as high as 20 percent of Saudi Arabia’s gross domestic product (GDP).
Last year, Saudi Arabia posted a budget deficit of USD 17.5 billion with Jadwa Investment firm announcing that by the end of July the government had withdrawn USD 82 billion of its fiscal reserves, reducing the assets to USD 650 billion. Jadwa added that the reserves are expected to drop to USD 629 billion by the end of the current year.
According to existing reports, Saudi Arabia’s economic growth is also expected to fall below last year’s figure of 3.5 percent.
Most experts blame Saudi Arabia for falling oil prices as the kingdom has increased its crude output to unprecedented level of over 10 million barrels per day, using oil as leverage to pressure countries that oppose its regional policies.