KHOBAR, Saudi Arabia/RIYADH (Reuters) - Saudi Arabia’s government plans to push back the target date for eliminating a state budget deficit caused by low oil prices to 2023 from 2020, sources briefed by finance ministry officials told Reuters on Thursday.
Finance Minister Mohammed al-Jadaan disclosed the change at a seminar on the economy that was closed to the media, the sources said. A formal announcement will be made around the time of the release of the 2018 budget in late December, they said.
The 2020 target for abolishing the deficit, which totalled a record $98 billion in 2015, was part of a long-term fiscal plan that Riyadh released in December. Officials are now moving the target back three years to avoid slowing economic growth excessively and hurting the economy, Jadaan told the seminar.
Representatives of the finance ministry did not answer emails and telephone calls seeking comment.
Cuts in state spending and subsidies, plus efforts to raise new revenue from taxes and fees, have made considerable progress in reducing the deficit since 2015. Private economists think Riyadh may hit this year’s deficit target of $53 billion.
But the austerity measures have taken a heavy toll on the economy, which fell into recession in the second quarter of this year. Consumer prices are dropping and unemployment among Saudi citizens has been increasing.
The planned introduction of a 5 percent value-added tax in January will add more pressure to the economy, so officials have in recent weeks indicated next year’s budget will try to offset that by loosening the purse strings moderately.
Jadaan told the Financial Times last week that the 2018 budget was likely to project state spending of 928 billion riyals ($247 billion), up from this year’s original projection of 890 billion riyals.
Rises in domestic fuel and electricity prices look likely to be delayed, the sources said. A round of hikes was originally expected to occur in 2017, with all energy products reaching 100 percent of export prices by 2020. Now, the 100 percent level may not be reached until well after 2020.
“The extension will ease pressure on consumers including the private sector. The anticipated economic impact will enhance aggregate demand and hence improve economic growth,” said Ihsan Bu Hulaiga, a prominent Saudi economist.
The release of the original fiscal plan and its 2020 target helped to ease international investors’ concern about the ability of the Saudi economy to weather an era of low oil prices, and reduced downward pressure on the riyal currency.
Pushing back the target may mean a longer period in which Riyadh has to borrow and draw down its foreign reserves to cover the deficit. But many economists think confidence in Saudi Arabia has revived enough for it to change its plans without suffering a fresh assault on its currency.
Reporting by Reem Shamseddine and Marwa Rashad; Writing by Andrew Torchia; Editing by Peter Graff