The Saudi government’s tight spending policy is likely to remain tight this year, and
loosen only slightly in 2017, according to a key Saudi bank.
“A more significant easing is likely in 2018-20, but we doubt that there will be any return to the free-spending of the boom years, even as oil prices pick up,” the Saudi American Bank (Samba) said in a report.
“Inevitably, capital spending will be targeted, though all areas of government spending will continue to be rationalized, with particular focus on those that create a draw on foreign reserves.”
The report said it expects that the fiscal deficit will narrow over the next five years, though it will remain substantial, at least until 2020.
The average deficit is expected to be around 7 percent of average GDP over this period, it said, predicting that the cumulative shortfall in revenue will amount to SR940bn, or some $250bn.
”In short we think that a combination of domestic and external debt issuance, and a drawdown of savings will be sufficient to fund the position without putting undue strain on local liquidity,” the report said, referring to Saudi Arabia’s massive overseas assets built up during the oil boom during 2010-2014.
It said that the government would heavily resort to borrowing from those assets this year, with an estimated SR349bn gap to be closed.
“We think that domestic debt of around SR141bn will be issued in total this year, with the banks taking some SR111bn,” it said.
“As of end-June, banks had already bought SR70.5bn, so we think they will take on only a further SR40.5bn this year.”