Saudi Arabia said on Tuesday its economy contracted for the
first time in eight years due to painful austerity measures as it
announced record spending to stimulate growth.
The OPEC
kingpin said gross domestic product for 2017 shrank by 0.5 per cent due
to a drop in crude production in line with an agreement with major oil
producers aimed at boosting prices.
Oil sector GDP fell
2.0pc in 2017, the ministry said The last time the Saudi economy
contracted was in 2009, when GDP fell 2.1pc after the global financial
crisis sent oil prices crashing.
Riyadh also posted a
higher-than-expected budget deficit in 2017 and forecast another
shortfall next year for the fifth year in a row due to the drop in oil
revenues.
It unveiled plans to spend more than ever in
2018 in a bid to stimulate the sluggish economic, saying it expects GDP
to grow by 2.7pc.
The kingdom has set aside 978 billion riyals for expenditure, up 10pc on this year, said the finance ministry.
“The
2018 expansionary budget includes a number of new development
projects,” said powerful Crown Prince Mohammed bin Salman, who oversees
economic affairs.
“About 50pc of the new budget will be financed from non-oil sources,” he said, quoted by the official Saudi Press Agency.
The
contraction comes as the world's top oil exporter tries to cope with
persistent budget deficits that began in 2014 when crude prices
plummeted.
In the past four years, Riyadh posted a total
of $258bn of budget deficits, drew on $240 billion of its reserves and
borrowed around $100bn.
King Salman said the Gulf country would “continue to decrease its dependence on oil to reach just 50pc” of total revenues.
The finance ministry estimated a deficit of $52bn for 2018.
It said the deficit for 2017 came in at $61.3bn, or 9.2pcof GDP, and higher than the expected $53 billion.
The shortfall is still 25pc lower than the $82 billion posted in the previous year.
Loosening the purse strings
King Salman told the cabinet that Saudi Arabia expects to continue posting deficits through to 2023.
Revenues in 2018 were estimated to be 783bn riyals, up 13pc on the previous year's projections.
Actual
revenues for the current fiscal year rose by a healthy 34pc compared
with 2016 to $185.6bn due a sharp increase in both oil and non-oil
revenues.
Capital Economics said Saudi Arabia had loosened up its purse strings.
“After
the harsh austerity of 2015-16, the government appears to have loosened
fiscal policy in 2017,” said the London-based think-tank.
It was expected to continue doing so next year, it added.
Actual
non-oil revenues collected in 2017 reached 256bn riyals, a 38pc rise on
the previous year, reflecting the impact of hiking prices and imposing
fees.
Riyadh has resorted to a string of austerity
measures to contain spending and imposed a variety of subsidy cuts and
rises in prices of services.
Prince Mohammed, the
architect of the “Vision 2030” programme of reforms for a post-oil era,
has announced a host of mega projects, including a futuristic megacity
with robots and driverless cars, which require about $500bn in
investments.
The cornerstone of the reforms is an initial
public offering of nearly five percent of national oil giant Aramco
planned for next year.
Prince Mohammed has also been behind stunning decisions to allow women to drive and to lift a 35-year-old ban on cinemas.
Last
month, the heir to the throne launched a wide-ranging crackdown on
dozens of elites, ostensibly to tackle corruption, but experts say it
was also a way of consolidating his grip on power.
Since 2015, the ultra-conservative kingdom has introduced a series of price hikes on fuel and electricity.
It has also imposed fees on expats and is preparing to introduce value-added tax in the new year.
The finance ministry said unemployment among Saudis rose to 12.8pc in June, up slightly on last year.
The
government has allocated $13.9bn for the cash transfer programme called
the Citizen Account to compensate the needy for hiking prices.
