JEDDAH: The projected deficit in next year’s budget will continue to be financed using a combination of Saudi Arabian Monetary Agency’s (SAMA) huge stock of net foreign assets, and domestic debt, analysts predicted on Monday.

The Finance Ministry said that government bonds were issued to the local financial market during the current fiscal year, totaling SR98 billion.

By the end of the current fiscal year 2015, public debt is estimated at SR142, equivalent to 5.8 percent of the expected GDP this year, as compared to the public debt registered at the end of the last fiscal year (2014) of SR44 billion, which represented 2 percent of GDP for the year (2014).

Saudi Arabia's budget deficit amounts to SR367 billion ($97.9 billion) in 2015. This is due to low oil prices, the Council of Economic and Development Affairs said in a statement on Monday.

The deficit is "considered an acceptable figure" under the circumstances, with oil languishing at multi-year lows, Hindi bin Abdullah Al-Suhaimi, an adviser to the council, told a media briefing.

Private analysts said markets could react positively to Monday's budget announcement because the 2015 deficit was lower than the SR400-450 billion, which many investors had expected.

Saudi Arabia's bourse garnered solid gains on Monday ahead of the unveiling of the budget, with investors betting on stocks expected to benefit from new economic policy, including subsidy cuts, agencies said.

This helped the Saudi index to close 0.7 percent higher, 8 points shy of the critical 7,000 levels, after trading broadly flat for much of the session.

Said Al-Shaikh, group chief economist at the National Commercial Bank, said the 2015 actual budget came as expected in terms of revenue and expenditure and also projected deficit of SR367 billion.

“The noticeable thing about 2015 is a sharp increase in nonoil revenues by 29 percent to reach SR 163 billion,” he added.

Al-Shaikh said: “As far as 2016 budget, given the current global economic developments and lower oil prices, I find the budget is very balanced and very suited even though it is lower than the preliminary budget of 2015.”

Fahad Alturki, chief economist and head of research at Jadwa Investment, told Arab News: “Despite the global environment of lower oil prices, the Kingdom has maintained a high level of spending in the 2016 fiscal budget. Education and health care remain the focus of government spending, accounting for 35 percent of total spending. Despite being reduced slightly, budgeted spending is set to play a vital role in supporting the economy in 2016.”

Basil Al-Ghalayini, CEO of BMG Financial Group, told Arab News: “Obviously, this is a new era in the Saudi fiscal policy, which will be driven by ‘efficient spending’ measures. Having said that, government spending, which is usually a major revenue driver for the private sector, has been cut only by two percent. Hence, the business community will not be affected but will not enjoy any growth.”

He said: “As for the taxes on soft drinks and tobacco, like what happened in other economies, it is unlikely this will have any impact on the trade due to price elasticity as people will still continue consuming, unfortunately, soft drinks and smoke tobacco.”

Asim Bukhtiar, head of research and investment advisory, Saudi Fransi Capital, said: “Based on the preliminary figures, a projected deficit of SR326 billion for 2016 suggests continued spending. Actual revenues may be higher particularly with a push in nonoil sources. In the coming days, measures will be unveiled outlining revenue diversification. Eventually the idea is that oil price will take backseat in setting future budgets. Interesting to watch will be spending discipline in 2016 where actual and projected expenditures align."

James Reeve, deputy chief economist and assistant general manager at Samba Financial Group, said: “If the government's spending plans are implemented in full (a 14 percent decline in spending) then I think there will be a recession in the nonoil economy. However, I think everyone recognizes that getting the budget back on a sustainable footing has to be the priority.”

But gross domestic product growth, which was 3.3 percent this year, is expected to suffer as state spending cuts hurt the construction industry and higher fuel and electricity prices dampen consumer spending.

"We see real GDP growth decelerating sharply in 2016, albeit remaining positive," said Monica Malik, chief economist at Abu Dhabi Commercial Bank.

Budget highlights — Visit www.arabnews.com