Saudi Arabia puts balanced budget on hold amid spending splurge

Saudi Arabia has put plans to balance its budget on hold as the government opens the spending taps.

The kingdom announced Tuesday that government spending will increase to 978 billion riyals ($261 billion) in 2018, a jump of 6% from the previous year.

At the same time, the kingdom said it was shifting its target for a balanced budget from 2020 to 2023.

The spending splurge comes as Crown Prince Mohammed bin Salman embarks on an ambitious reform agenda designed to reduce the country’s dependence on crude oil.

His blueprint, called Vision 2030, includes social and economic reforms such as lifting the ban on women driving. But it also includes subsidy cuts that have weighed on growth.

“The government is increasing spending as a way to stimulate growth and increase private sector participation and investment,” said John Sfakianakis, director of economic research at the Gulf Research Center in Riyadh.

“It makes a lot of sense to delay achieving a balance budget as too much fiscal tightening too soon could hurt the economy more,” Sfakianakis added.

Increased spending may have put a balanced budget out of reach, but Saudi Arabia has made some progress in reducing its deficit.

The government said it expects its deficit to narrow by 15% next year to 195 billion riyals ($52 billion). It had swelled to as much as 366 billion riyals ($100 billion) in 2015, when an oil price crash put a big hole in the budget.

Saudi also tapped global bond markets three times in less than a year, borrowing billions to help balance its books.

Increased investment could also help reduce the country’s unemployment rate, a key government goal. Nearly 13% of Saudis under the age of 30 don’t have a job.

“The focus now will be on services and supporting the private sector to increase job growth,” said Khalid Ashaerah, a private business consultant in Riyadh. “This new budget shows that the recession is over as the government undertakes major reform measures.”

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