ECONOMY

What if Saudi Arabia had not pursued economic reforms?

In a worst-case scenario, if the kingdom fell short in implementing the reform agenda, the realization of balance point would prove to be even more complicated. (Shutterstock)

Saudi Arabia’s budget for the fiscal year 2017 comprised a number of innovative programs and significant reforms. These were aimed at diversifying sources of income in order to achieve economic sustainability through procedures and comprehensible strategies to reduce the deficit and reach economic growth.

According to what has been laid out during a press conference that unveiled the 2017 budget, the deficit is expected to drop 33 percent to 198 billion riyals, lower than 2016, while the revenue is projected at 692 billion riyal, 31 percent higher than last year.

It has been envisaged that the Saudi budget reaches the break-even point in 2020 following the enactment of the new measures, and if oil prices continue at its low levels.

However, if the outlined new economic reforms were not embraced and no actions were taken to address and repair the source of the high deficit, the most likely scenario will be that projected deficit will reach 346 billion riyal next year, 248 billion riyal in 2018, 233 billion riyal in 2019, and 206 billion riyal in 2020.

The deficit figures will, of course, vary depending on the realization of those reforms amid oil price variations.

In a worst-case scenario, if the kingdom fell short in implementing the reform agenda, the realization of balance point would prove to be even more complicated, and the deficit gap will widen, ending up in zero reserves.

As the budget figures forecast, if oil prices realistically improve, the shortfall will drop as revenue improves and may even turn to a surplus in 2019, and result in a surplus of 55 billion riyals in 2020, in case oil prices remain low.

The objectives of the suggested economic reforms are financial diversification of sources of revenue, aimed at heading off causes that may raise deficit level over the next five years.

Spending in 2016 is estimated at 825 billion riyals, slightly below the budget estimate, while actual revenue reached 528 billion riyals, 3 percent above target.

*This article also appears in Arabic on AlArabiya.net.

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Last Update: Saturday, 24 December 2016 KSA 18:17 - GMT 15:17
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What if Saudi Arabia had not pursued economic reforms?
It has been envisaged that the Saudi budget reaches the break-even point in 2020 following the enactment of the new measures
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