LONDON: Saudi Arabia’s reduction in its budget deficit marks a “stabilization” of its economy but avoiding big hikes in government spending will remain a challenge, according to a new research note.
Saudi Arabia reduced its budget deficit by 60 percent to SR49 billion ($13 billion) in the first nine months of the year, official figures published last month show.
The reduction — greater than anticipated in earlier budget forecasts — was the result of a significant growth in both oil and non-oil revenues, the Ministry of Finance said.
A research note by Paul Wetterwald — chief economist for Indosuez Wealth Management, the global wealth management division of Crédit Agricole, said that this marked an “impressive” reduction in the deficit given it was accompanied by a rise in government spending.
Going forward, however, minimizing hikes in government spending will be key, Wetterwald wrote in the note circulated on Monday.
“The most recent data suggests some kind of stabilization, but resisting the temptation to re-expand government spending in line with higher oil prices will remain a challenge,” he wrote.
Wetterwald pointed out that Saudi Arabia’s debt-to-GDP ratio is set to rise over the coming years.