Higher oil revenues coupled with a wide-ranging economic diversification plan will combine to cut projected Saudi budget deficits in 2016 and 2017, an economic report said on Thursday.
Riyadh-based Jadwa Investment scaled down its projection for the 2016 budget shortfall to $75 billion from $107 billion.
In 2017, Jadwa now projects a deficit of $56 billion against its earlier projection of $88.5 billion.
“Higher oil revenues will lead to smaller deficits than our earlier forecast,” while consolidation of state finances is expected to occur more quickly than expected, and consistent with the National Transformation Program (NTP) 2020, said Jadwa.
While 2016 “will not be impacted by NTP initiatives”, they will start being felt next year, the researchers said, “with growth, fiscal, external, and monetary indicators posting a gradual recovery in following years as well.”
Global oil prices have jumped to around $50 a barrel this year.
The government of the world’s biggest oil exporter projected this year’s deficit at $87 billion following a record $98 billion shortfall in 2015.
Released last week, the NTP sets five-year targets for diversifying the economy away from oil which still provides the majority of state revenue.
After five years the kingdom is forecast to balance its budget by more than tripling non-oil revenues to $141 billion, Jadwa said.
“We see this target being achieved if a collective effort by other government bodies is made, including the Zakat and Tax Authority, Saudi Customs, and other public investment vehicles,” Jadwa said.
Another economist, however, said the targeted increase in non-oil income would be difficult to achieve even in 14 years.
“I don’t know how realistic it is, really, to be honest with you. There’s so many aspects that need to be overcome,” Patrick Dennis, lead Middle East economist at British-based advisory firm Oxford Economics, told AFP.
The NTP also plans to cut the civil service wage bill to 40 percent of spending from the current 45 percent.
Endorsed by the Saudi cabinet on June 6, the NTP is one of several programs under Saudi Vision 2030, a reform drive led by Deputy Crown Prince Mohammed bin Salman, 30, the powerful son of King Salman.
The Vision aims to transform the state-dominated economy of the world’s largest oil exporter into a private-sector powerhouse with diverse industrial interests and major international investments.SHOW MORE