Saudi budget 2017 to include tough but necessary measures

An artist’s impression of the King Abdullah Financial District in Riyadh ... futuristic.
Updated 22 December 2016
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Saudi budget 2017 to include tough but necessary measures

JEDDAH: Saudi Arabia will today unveil its annual budget statement, which is expected to outline a series of tough measures designed to put the Kingdom on the road to achieving financial balance by 2020.
Subsidy cuts, rationalized spending and new fees for expatriate workers are three key moves expected to be announced today. 
The budget is likely to see the cost of living increase for many residents, but economists said the measures were sensible and necessary to address the Kingdom’s economic woes in the wake of the oil price crash.
Any cuts in government spending are not expected to impact salaries and basic benefits of public sector employees, but be more geared toward reducing mismanagement of additional benefits and cutting luxuries, informed sources told Arab News.
The 2017 budget is expected to see costly subsidies on utilities such as water and electricity cut, sources said, while other media reported that fuel prices will also rise by 40 percent.
Low-income Saudi nationals are to be recompensed for the hike in utility costs through a government-managed cash aid scheme, which will also be designed to reward those who are the most efficient in their use of energy. The government is expected to levy an additional fee on expatriate workers in the Kingdom, likely to be a fixed amount of around SR800 ($213) a month, according to unconfirmed reports so far.
Such measures, to be announced on Thursday, are designed to address the deep economic challenges faced by Saudi Arabia, which have forced project cancellations and delayed payments to some the country’s biggest companies.
The government has already pledged to pay all contractors owed money and is expected to introduce measures that ensure that such delays seen previously do not happen again.
A year ago, the Saudi government forecast a 2016 deficit of some SR326.2 billion ($87 billion) — although the actual number for this year is expected to be lower and fall further in 2017, Reuters reported.
Economists said that the move to cut subsidies was a positive one as Saudi Arabia looks to balance its budget by 2020.
“It’s a healthy step as subsidies have distorted pricing for long and harbored inefficiencies,” said John Sfakianakis, director of economic research at the Gulf Research Center, based in Riyadh.
“However, subsidies have to be phased out over some time and mindful of the economic impact over the least privileged and financially constrained.”
Sfakianakis said that time will tell whether a fee on expat workers would be economically sustainable.
“We need to wait and see… what will be its impact on business and investments,” he told Arab News.
Economist Nasser Saidi also said cutting subsidies was a positive step.
“The low-hanging fruit from a policy-adjustment point of view is subsidies… and that, in my view, is the direction to go,” said Saidi, a former Lebanese economic minister and former chief economist at the Dubai International Financial Center.
Saidi, who is now president of advisory Nasser Saidi & Associates, said subsidies in Saudi Arabia mainly benefited businesses rather than individuals.
“More than 70 percent of subsidy goes to corporates, not to individuals and households,” he told Arab News.
“It is businesses and factories, etc., that have been used to living on cheap oil and water. As a result of that, Saudi Arabia and all the GCC (Gulf Cooperation Council) countries are highly energy-intensive in their activities.”
Cutting such subsidies would promote the use of cleaner energy, although it could push up inflation and transport costs too, Saidi said.
He added that Saudi Arabia, because of its low public debt, does not necessarily need to hit its 2020 deadline of balancing the budget.
“It’s not clear to me that Saudi Arabia actually needs to have that much fiscal adjustment,” he said. “It has a very low level of public debt, so you can take a longer time to adjust.”


India looks to Saudi crown prince for historic $1bn pledge

The crown prince arrived in the Indian capital on Tuesday. (AFP)
Updated 2 min 38 sec ago
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India looks to Saudi crown prince for historic $1bn pledge

  • India is hoping the crown prince will announce an investment in its National Investment Infrastructure Fund

 NEW DELHI: Saudi Arabia’s Crown Prince Mohammed bin Salman is expected to announce a $1 billion investment in India’s infrastructure and farming sectors during his first visit to the South Asian nation, experts said.

The crown prince arrived in New Delhi on Tuesday to a warm reception.

India is hoping the crown prince will announce an investment in its National Investment Infrastructure Fund (NIIF), a sovereign wealth fund that includes private companies and foreign investors. The fund focuses on upgrading India’s infrastructure, including railways and highways.

“We can expect a commitment of around $1 billion,” said Dr. Muddassir Quamar, an associate fellow at the Institute for Defense Studies and Analyses, a New Delhi-based think tank.

India and Saudi Arabia have traditionally had friendly relations which Prime Minister Narendra Modi has sought to strengthen in recent years in a bid to improve ties with major Muslim nations.  

The Kingdom is India’s top energy supplier and home to more than 3.5 million Indian expatriates. Much of bilateral trade between New Delhi and Riyadh has been based on energy, but both countries are now seeking to broaden ties. 

Earlier this week, the Saudi Press Agency said the Kingdom was considering an investment deal in NIIF. Meanwhile, India announced that its Cabinet had approved an agreement between the two countries on investment in infrastructure.

However, Talmiz Ahmad, a former Indian ambassador to Saudi Arabia, said it is up to New Delhi to take advantage of the opportunity and make sure it gets the investment.

“There is plenty of room for investment in infrastructure, but the perception across the region is that India is not business friendly,” Ahmad said. “We need to improve things like acquisition of land, the tax regime and to speed up approvals.”

Apart from investments in energy, India also expects to see deals in agriculture. 

India already exports cereals and agricultural products to the Kingdom, and can be an additional source of Saudi food security, Quamar said. 

“We talk a lot about promoting joint ventures,” said Ahmad. “But none of them has any meaning if the region is mired in terrorism.”