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Saudi Arabia plans to boost government spending by 7 percent next year to US$295 billion (1.1 trillion riyals), a preliminary 2019 budget quoted by S&P Global Platts has shown. This amount breaks the previous record in spending, set this year with a budget of US$261 billion, the highest in Saudi history.
Revenue, on the other hand, would come in at US$261 billion, of which 70 percent from oil thanks to higher oil prices. The percentage of oil revenues in the total mix should be alarmingly high: the Kingdom was planning to reduce this to less than 50 percent of its total state revenue but, as some skeptics have already warned, high oil prices are a temptation difficult to resist.
This leaves a deficit of approximately US$34 billion. The cumulative deficit from 2014 to 2017 came in at more than US$260 billion, but recovering prices have been instrumental in its quick reduction and now the Kingdom hopes to balance its budget by 2023.
According to a senior financial ministry official, the deficit reduction will be the result of a continued reform drive including job creation and the redirection of state funds. However, public spending is rising for now, along with oil prices: in the first half of 2018, public spending went up by 34 percent as state revenues jumped 67 percent on the back of oil prices.
Related: Saudi Arabia, Kuwait Discuss New Oil Production In Neutral Zone
Earlier this year, Saudi Arabia’s Finance Minister told CNBC that oil prices will not have any impact on the pace of reforms the Kingdom has undertaken, even though he acknowledged the price improvement over the last two years has helped the Kingdom reduce its deficit by as much as 40 percent.
"Higher oil prices will only help reduce the deficit and build reserves, we will continue our reform,” he said. “I assure you that there is a lot of excitement about reform and when you see results you get more energy to do more because you can see that it's working and helping the economy.”
Just this week, however, the Wall Street Journal reported, citing government officials, that one of the biggest projects in the reform program, the US$200-billion biggest solar farm in the world, has been put on hold.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.