The decline in global oil prices since 2014 has negatively impacted the revenues of Saudi Arabia, which has led the Saudi government to take steps to rationalize spending and diversify its sources of income to counter oil price fluctuations and their impact on the Kingdom's economy.
By the end of 2015, the Kingdom of Saudi Arabia announced its national vision «Vision 2030» to define the features of a radical and ambitious change in the economic and social situation in order to achieve priority economic objectives, foremost of which, is to reduce dependence on oil as a major source of income. It also launched the National Transformation Program 2020 and the Fiscal Balance Program, which aim to achieve budget balance by 2020 but have been updated to 2023.
The 2018 budget, which includes the actual financial results of 2017, was issued this week. The Saudi economy recorded a slight contraction of 0.5% in real GDP, largely due to a drop in oil production.
The budget for 2018 is the largest in the Kingdom's history in terms of expenditure, with a 5.6% increase compared to 2017 to reach SR 978 billion. Education, Health, Hocial Development and Economic Resources sectors accounted for 45.3% of the total budget.
Non-oil revenues will witness an expected growth in 2018 of 13.7% to reach SR 291 billion following the introduction of Value Added Tax (VAT) , the second phase of the expatriate Levy, and a number of other initiatives and reforms.
In 2018, the Kingdom will continue to produce oil at around 10 BPD due to OPEC's agreement with non-OPEC producer countries. This will underpin the upward momentum of oil prices albeit at a slow pace and is expected to contribute to a rise in oil revenues to reach SR 492 billion.
The deficit is expected to reach SR 195 billion during 2018 financing the fiscal deficit will be covered by withdraws from government assets and debt issuances in local and international markets, limiting the risks on local liquidity levels.