With spending boost, budget gives Saudi reforms new impetus

King Salman during a cabinet meeting to announce the 2019 budget. (SPA)
Updated 20 December 2018

With spending boost, budget gives Saudi reforms new impetus

  • King Salman says budget is the largest in the Kingdom’s history, aiming to support economic growth
  • The government aims to boost spending by about 7 percent in 2019

RIYADH: Saudi Arabia hopes a bumper budget unveiled on Tuesday will revive the economy, with record levels of government spending intended to spur growth.

The government aims to boost spending by about 7 percent in 2019, despite a continuing budget deficit — the shortfall in revenues compared to expenditure. 

King Salman said the budget was the largest in the Kingdom’s history, and one designed to achieve financial stability.

“We are determined to go ahead with economic reform, achieving fiscal discipline, improving transparency and empowering the private sector,” he said.

Crown Prince Mohammed bin Salman, who is behind the Vision 2030 program to reform the economy, said the government would continue to “diversify the sources of income and consolidate fiscal sustainability through boosting non-oil revenues.” 

Non-oil revenues increased to $77 billion this year and are estimated to reach $83.5 billion — or around one third of total revenues. 

Minister of Finance Mohammed Al-Jadaan said the budget announcement, along with a speech by King Salman pledging to continue paying allowances to citizens, marked a “historic day” for the Kingdom.

Finance Minister Mohammed Al-Jadaan said the budget marked a historic day for the Kingdom. (Ziyad Alarfaj/Arab News)

Government spending is projected to rise to 1.106 trillion riyals ($295 billion) next year, up from an actual 1.030 trillion riyals this year, Al-Jadaan said at a briefing in Riyadh. 

The budget estimates a 9 percent annual increase in revenues to 975 billion riyals, mostly from oil. The deficit is forecast at 131 billion riyals for next year, a decline on 2018.

Saudi Arabia has been working to diversify its economy away from oil, by promoting the private sector, as well as increasing the prices of fuel and energy and imposing a value-added tax. 

Government coffers have also been given a boost by Saudi Arabia’s clampdown on corruption late last year, in which scores of top officials and business executives were detained at the Ritz-Carlton hotel in Riyadh. 

Al-Jadaan said the government had collected about 50 billion riyals this year in settlements, and he expected collections to continue next year. 

Investigators said this year they aimed to seize about $100 billion overall.

The minister said Saudi Arabia was working to fulfil payments owed by the government to private contractors. “The government is seeking to settle any dispute with the private sector with regard to the due payments,” he said.

Saudi Arabia, long reliant on oil revenues, has suffered a budget deficit every year since 2014, when a slump in energy prices lowered state income. 

Its 2019 budget announcement came as world oil prices tumbled to new one-year lows, amid concerns over demand.

Davos organizer WEF warns of growing risk of cyberattacks in Gulf

Updated 21 min ago

Davos organizer WEF warns of growing risk of cyberattacks in Gulf

  • Critical infrastructure such as power centers and water plants at particular risk, says expert
  • Report finds that unemployment is a major concern in Bahrain, Egypt, Morocco, Oman and Tunisia

LONDON: The World Economic Forum (WEF) has warned of the growing possibility of cyberattacks in the Gulf — with Saudi Arabia, the UAE and Qatar particularly vulnerable.

Cyberattacks were ranked as the second most important risk — after an “energy shock” — in the three Gulf states, according to the WEF’s flagship Global Risks Report 2019.

The report was released ahead of the WEF’s annual forum in Davos, Switzerland, which starts on Tuesday.

In an interview with Arab News, John Drzik, president of global risk and digital at professional services firm Marsh & McLennan said: “The risk of cyberattacks on critical infrastructure such as power centers and water plants is moving up the agenda in the Middle East, and in the Gulf in particular.”

Drzik was speaking on the sidelines of a London summit where WEF unveiled the report, which was compiled in partnership with Marsh and Zurich Insurance.

“Cyberattacks are a growing concern as the regional economy becomes more sophisticated,” he said.

“Critical infrastructure means centers where disablement could affect an entire society — for instance an attack on an electric grid.”

Countries needed to “upgrade to reflect the change in the cyber risk environment,” he added.

The WEF report incorporated the results of a survey taken from about 1,000 experts and decision makers.

The top three risks for the Middle East and Africa as a whole were found to be an energy price shock, unemployment or underemployment, and terrorist attacks.

Worries about an oil price shock were said to be particularly pronounced in countries where government spending was rising, said WEF. This group includes Saudi Arabia, which the IMF estimated in May 2018 had seen its fiscal breakeven price for oil — that is, the price required to balance the national budget — rise to $88 a barrel, 26 percent above the IMF’s October 2017 estimate, and also higher than the country’s medium-term oil-price target of $70–$80.

But that disclosure needed to be balanced with the fact that risk of “fiscal crises” dropped sharply in the WEF survey rankings, from first position last year to fifth in 2018.

The report said: “Oil prices increased substantially between our 2017 and 2018 surveys, from around $50 to $75. This represents a significant fillip for the fiscal position of the region’s oil producers, with the IMF estimating that each $10 increase in oil prices should feed through to an improvement on the fiscal balance of 3 percentage points of GDP.”

At national level, this risk of “unemployment and underemployment” ranked highly in Bahrain, Egypt, Morocco, Oman and Tunisia.
“Unemployment is a pressing issue in the region, particularly for the rapidly expanding young population: Youth unemployment averages around 25 percent and is close to 50 percent in Oman,” said the report.

Other countries attaching high prominence to domestic and regional fractures in the survey were Tunisia, with “profound
social instability” ranked first, and Algeria, where respondents ranked “failure of regional and global governance” first.

Looking at the global picture, WEF warned that weakened international co-operation was damaging the collective will to confront key issues such as climate change and environmental degradation.