Saudi Arabia’s budget suggests that, following a significant improvement in the public finances over the past couple of years, the fiscal stance will be broadly neutral in 2017. This supports our view that the economy should embark on a gradual recovery next year.
While spending will rise in 2017, this is expected to be partially offset by an increase in non-oil revenues. These are both due to an “energy pricing reform programme”. No official announcement has been made yet, but a fresh round of subsidy cuts looks likely. Due to a quirk of Saudi Arabia’s government finances, subsidy cuts show up on the revenue side. In order to offset the impact on the poorest households, the authorities are set to announce a cash transfer programme, which will push up spending. One way of gauging Saudi Arabia’s fiscal stance is to look at the expected change in the non-oil budget balance (as a share of non-oil GDP) over the next year.
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