The Saudi Ministry of Finance announced the Kingdom’s 2021 budget statement on the 16th of December 2020. This report is a continuation of our commitment to highlight key insights from the Saudi budget announcements.
In this report, we will review important figures for 2020 and 2021 considering the COVID-19 pandemic, share our insights into the effectiveness of the reforms of the last few years, and dive into the outlook of the economy in the medium-term.
The annual figures show a predictable adverse reaction to the pandemic and the additional oil price decline, with the former led by reduced consumption in the economy and the latter resulting in fewer oil revenue than expected. The expected revenues and expenditures for 2021, 2022, and 2023 have been slightly revised, with the economic recovery from the pandemic showing good signs. However, the 30% public debt (% of GDP) ceiling previously established by the Fiscal Balance Program has been breached due to a higher deficit in 2020.
In the short term, the Kingdom is cautiously reducing discretionary capital expenditure in non-essential government agencies and continues to improve spending efficiency through its Vision Realisation Programs (VRPs). Funding has instead been channelled to more pertinent sectors, such as health care, to bolster them in the short-term – a part of which includes the Kingdom’s commitment to providing free testing, treatment, and vaccines to all who need them, regardless of nationality or residency status. The traditionally high wage bill is stayed the same, though the halting of the cost-of-living allowance reduced it marginally in 2020.
The year 2020, once again, highlights the importance of diversifying the Kingdom’s economy and while the short-term outlook seems adverse on face value, the strengthening non-oil GDP and the range of VISION 2030 related initiatives show promise.