Riyadh-Mubasher: Saudi Arabia's 2016 budget contains significant reforms and follows notable expenditure restraint during the second half of 2015, but the fall in oil prices means that the deficit/GDP ratio will again be in double-digits, Fitch said in a recent report.
The budget outlines measures to rationalise expenditure, increase non-oil revenues, and improve the fiscal policy framework. Petrol and utility price hikes were announced, and subsidy reform will proceed "gradually over the next five years."
The authorities aim to slow the growth of recurring expenditure, especially wages, salaries and allowances.
Adopting a medium-term expenditure framework with a budget ceiling and creating a debt management office should strengthen management of the public finances, the agency said.
The full impact on the deficit will depend on the pace and extent of implementation and the size of offsetting measures to allay the effect on low- and middle-income families.
The lower-than-expected 2015 deficit mainly reflects measures to contain spending introduced during the year - including greater scrutiny of capex.
The 2016 budget for the first time includes an unallocated contingency reserve worth 22% of budgeted spending to cover unforeseen expenditure.
"We assume that, without a significant rebound in oil prices, this will not be fully drawn down, making a further reduction in the gap between budgeted and actual spending plausible. It is unclear whether heightened tension with Iran will increase security costs," the agency said.
The fiscal policy response to lower oil prices and evolution of fiscal and external buffers are key to resolving the Negative Outlook on Saudi Arabia's 'AA' sovereign rating.
