Saudi King Salman approved the 2017 national budget Dec. 22 in a special meeting of the Cabinet. After spending just 825 billion riyals ($220 billion) in 2016, Saudi Arabia plans to boost spending by 8 percent next year to 890 billion riyals. Even with this increased spending, the Saudi deficit is actually projected to decline as a share of gross domestic product from the current 10 percent to roughly 8 percent of GDP (198 billion riyals), largely because of a rise in revenue.
A huge share of this increase comes from spending on the kingdom's National Transformation Program, the first five-year initiative to implement some of the goals of the ambitious Vision 2030 reform. In 2016, the allotment for these reforms was only 9 billion riyals. Next year this will rise to 42 billion riyals. And this does not even include measures meant to ease the burden of the pricing reforms that are part of this program. Riyadh plans to launch a monthly direct subsidy program that will give citizens up to 2,222 riyals a month, depending on their income. These subsidies will reportedly launch in June and Saudi Arabia will begin boosting gasoline, electricity and water prices over the next few years.
The 2017 budget emphasizes the fact that 2016 was a year of preparation for Riyadh. The government first wanted to trim expenditures and stabilize the economy in order to implement drastic reforms in 2017 and beyond. The National Transformation Program was announced in the second quarter of 2016 and, while it laid out a complex ministry-by-ministry plan for changes meant to be implemented by 2020, little tangible progress has been made besides spending cuts and a freeze on major government expenditures. Now, in 2017, four times as much of the budget is set aside for accomplishing the National Transformation Program's goals of creating half a million jobs.
As for the transition to providing cash payouts and direct subsidies, consultants have long been advising Saudi Arabia to make this painful switch, rather than widely distributing subsidies by sector, which is more inefficient manner. The structure of the direct subsidies is important because it directly limits spending rather than targeting prices; this will limit spurious consumption from most citizens. Direct subsidies also do not benefit foreigners as the other structure would. Expatriates — who comprise a huge portion of the workforce — have been targeted in Saudi Arabia's reform updates. The plan upgrades a lackluster "Saudization" program, imposing among other things an additional 100 riyal tax on every employee in a company where foreign employees outnumber Saudi employees. The ambitious reforms of Vision 2030 and the National Transformation Program aim in part to decrease the economy's abject reliance on oil revenues — and the 2017 budget will kickstart that slow transition.
