Riyadh-Mubasher: The Saudi government announced a serious fiscal austerity package to address steep declines in oil revenues, said the Institute of International Finance (IIF) in a report.
Actual spending declined by 12.6% in 2015 due to better-than-expected cost control measures. Nonetheless, the sharp fall in oil revenues more than offset the cut in spending, and the deficit jumped to around 16% of GDP.
With little prospect for a revival of oil prices, the authorities have recently announced further key fiscal adjustment measures, including fuel and utility price hikes and plans for privatisation, IIF said.
While government spending is expected to decline by 14% in 2016, lower oil prices would still lead to another double digit-deficit of 12.6% of GDP.
Reduced public spending, together with weaker business sentiment, will bring growth down to 1.2% in 2016, from 3.3% in 2015, according to the report.
The authorities' gradual but sizeable fiscal consolidation plan, if implemented fully, should put the fiscal stance on a more sustainable footing in the medium term.
"Using our baseline Brent crude oil price path (which rises gradually from $45 per barrel in 2016 to $70 by 2025), our projections show that the fiscal deficit will narrow steadily to about 2% of GDP by 2025, and the government debt will rise steadily and then stabilize at around 50% of GDP by 2024," IFF said.
