Economy Jamie Simon
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Saudi Arabia is stepping up efforts to reduce its budget deficit and targets the cancellation of projects worth 20 billion dollars and cutting budgets by 25%.
The government reassess now thousands of projects valued at $69 billion and could cancel a third of them, according to three sources cited by Bloomberg. This measure could affect the budget for several years.
A separate plan includes merging several ministries and eliminating others. The largest oil exporter in the world took an unprecedented measure to halt the decline of the budget, which was reduced by 16% last year. The IMF expects the decrease to fall to 10% by 2017.
“The strategy of revenue diversification and activity was implemented to give the yield on the medium and long term,” said Raza Agha, chief economist at VTB Capital. “In the short term is to survive with low oil prices by cutting costs,” she added.
Almost eight decades after oil was found in Saudi Arabia, the government launched a new series of reforms to make the transition to a non-dependent on oil.
The new plan is based on increasing infrastructure, finding new financing lines by the Government and reducing costs, including social ones.
Prince Mohammed bin Salman says authorities must generate up to 100 billion dollars per year, in addition to oil revenues by 2020. Reducing subsidies on fuel, electricity, and water will bring 30 billion dollars a year, while the addition of VAT will generate another 10 billion.
Although investors will embrace the plan they will most likely encounter difficulties in implementing it to the kingdom.
The country’s public debt, which in 2014 was the lowest in the world, is expected to increase by 25% by 2017, according to the IMF, which said in October that the kingdom is likely to exhaust their financial reserves in five years without sustainable measures.
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