Saudi Arabia’s 2018 Budget Emphasizes Growth through Economic Diversification
Saudi Arabia’s 2018 national budget highlights the government’s keenness to accelerate economic growth while utilizing the private sector as a catalyst for its economic transformation.
The Kingdom’s 2018 budget is the largest in its history and aims to fulfill the goals of Vision 2030 by heavily investing into its non-oil sectors such as defense, education, healthcare, and infrastructure.
The Saudi Government is projecting a budget of $261 billion (SR978.7 billion), a 5.6 percent increase over 2017’s budget of $250 billion (SR937.5 billion). Additional capital from the Public Investment Fund (PIF) at $22 billion (SR82.5 billion) and the National Development Fund (NDF) at $13.3 billion (SR50 billion) is to set to increase the Kingdom’s total public expenditure to $293 billion (SR1.1 trillion). Capital from both funds will be allocated towards the development of existing and future housing, industrial, and mining projects, in addition to other projects currently being serviced by PIF.
Saudi Arabia is projecting total revenue of $209 billion (SR783.7 billion), a 12.6 percent increase over 2017’s budgeted revenue. While the budget deficit is projected at $52 billion (SR195 billion) or 7.3 percent of gross domestic product, the Kingdom’s economy is set to rise by 2.7 percent. Projections for significant growth can be attributed to higher oil prices which will generate $131.2 billion (SR492 billion), revenue from newly established systems for taxes and fees reaching $37.8 billion (SR141.7 billion), and non-oil generated revenue at $77.6 billion (SR291 billion). Non-oil growth for 2018 is projected at 3.7 percent, whereas it reached 1.5 percent in 2017. The Kingdom is further projecting year on year economic growth which will balance its budget by 2023.
The 2018 national plan is set to rejuvenate the private sector while increasing employment opportunities through massive investments across Saudi Arabia’s sectors. The largest share of the budget was allocated for defense at $83 billion (SR311.2 billion) with the military receiving $56 billion (SR210 billion) and security receiving $27 billion (SR101.2 billion). Education accounted for 20 percent of the budget at $51 billion (SR191.2 billion) while healthcare raked in $39 billion (SR146.2 billion). Infrastructure spending increased by 90 percent to $14.5 billion (SR54.3 billion) while expenditure for economic resource projects for water supply schemes, dams and sewage tripled to $28 billion (SR105 billion). $14.1 billion (SR52.8 billion) was allocated for municipality services while $8.5 billion (SR31.8 billion) was budgeted for the Saudi Citizens Account program.
Economic Review of 2017
According to the Ministry of Finance, preliminary macroeconomic data indicate that Saudi Arabia’s economy in 2017 was affected by lower oil output, resulting in the economy contracting by 0.5 percent and real oil GDP declining by 4.3 percent. However, this was off-set by a 1.5 percent increase by the Kingdom’s non-oil sector, predominantly by the manufacturing and service sectors, which also reflected in the growth of real non-oil GDP.
The increase in oil prices resulted in nominal GDP growth by 6.1 percent. It further contributed to the growth in nominal non-oil GDP by 21.6 percent. The Kingdom also showed signs of economic improvement from 2016, including a 9.8 percent increase in point-of-sales transactions, a decrease of 2.2 percent in ATM withdrawals, and improved corporate profitability by the banking and petrochemical sectors.
Total government expenditure for 2017 exceeded budget projections by 4 percent at $247 billion. This was in part due to employees receiving compensation for austerity measures undertaken by the government, appropriations for new projects, and expropriation of property for the expansion of Al-Masjid an-Nabawi.
Projected revenue for 2017 matched with actual revenue at roughly $185 billion (SR693.7 billion), however oil revenue generated $12 billion (SR45 billion) less than estimations while non-oil revenue generated $11 billion (SR41.2 billion) more than expected. Although increasing by 19 percent over 2016, tax revenue fell 19 percent below expectations. While the 2017 budget originally envisaged a budget deficit $52.8 billion (SR198 billion), it actually amounted to $61.3 billion (SR230 billion), or 8.9 percent of GDP, an improvement over 2016 where the budget deficit reached 12.8 percent of GDP.
Saudi Arabia financed its budget deficit for 2017 through sukuk and bond issuance amounting to $35.7 billion (SR134 billion) in addition to $26.6 billion (SR100 billion) worth of withdrawals from government deposits and state reserves. Public debt for the end of the 2017 fiscal year stands at $116.8 billion (SR438 billion), reflecting 17 percent of GDP.