Saudi budget sets Kingdom up for fiscal squeeze

Saudi Arabia’s budget for 2016 released at the end of last year sets the Kingdom up for a period of fiscal consolidation. The plans outlined will help to rein in the country’s large twin budget and current account deficits and will be taken as a sign that the authorities are prepared to withstand a prolonged period of low oil prices. Indeed, the government appears to have assumed that oil prices will average $38pb this year. The budget should also dampen speculation that the Kingdom will abandon its oil market strategy or devalue the riyal. However, it reinforces our view that growth will weaken.