Saudi king extends allowances as living costs rise

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RIYADH, Saudi Arabia (AP) — Saudi Arabia’s expenditures will hit a record-high in 2019, with plans to increase state spending by 7 percent to reach $295 billion, even as declining oil prices have forced the kingdom to adopt austerity measures.

King Salman announced the figures on Tuesday, saying the government expects revenue to increase by more than 9 percent to hit $260 billion. That leaves a projected deficit of $35 billion — less than previous years.

Total revenue in 2018 reached $239 billion, with expenditures of $274.5 billion.

“This budget is a continuation of the government’s policy of focusing on fundamental citizen services and the development of government services,” the king said at a government meeting that included ministers and his son, Crown Prince Mohammed bin Salman.

Saudi Arabia has been grappling with a deficit since oil prices first plunged in 2014. It needs oil at around $70 a barrel to balance its budget, but the price of oil continued to tumble after hitting a 14-month low on Monday. Benchmark U.S. crude dropped to a little more than $49 per barrel Tuesday. Brent crude, used to price international oils, dipped to $58.70 per barrel.

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As one of the world’s largest oil exporters, the Saudi government is working to diversify its revenue. Non-oil revenue has increased in recent years, but the state continues to rely heavily on oil for its domestic and international spending.

The Finance Ministry said oil revenues are expected to reach $176.5 billion in 2019— about 68 percent of state revenue— compared to $162 billion in 2018.

Capital Economics said this year’s Saudi budget seems to be relying on optimistic assumptions for oil prices to rise to almost $80 per barrel.

The annual Saudi budget is watched closely because it offers one of the clearest indicators of whether the kingdom is on track with its Vision 2030 plans— a blueprint put forth by the crown prince to wean the kingdom off its reliance on oil, particularly as sustainable sources of energy become cheaper and more popular.

The killing of Saudi writer Jamal Khashoggi, who’d written critically of the crown prince in The Washington Post, has called into question Prince Mohammed’s ability to attract foreign investors to help underwrite his plans. Khashoggi was killed and dismembered inside the Saudi consulate in Istanbul by agents close to the crown prince.

A report by U.S. intelligence firm Stratfor said that if growth only comes from heavy state spending, rather than private sector activity or higher levels of consumption, Saudi Arabia’s plans to diversify the economy have little chance of success in the near term.

Saudi Arabia only succeeded in attracting $1.4 billion in 2017, a figure that Stratfor said trails a number of poorer countries in the Middle East.

“Crown Prince Mohammed bin Salman’s ever-shifting reputation is a direct driver of this uncertainty, and questions about the rule of law, security of investments and the stability of the government abound,” Stratfor said.

Investors were also rattled last year when the crown prince oversaw the arrest of top princes, officials and businessmen in a wide-reaching anti-corruption campaign shrouded in secrecy. The sweep netted more than $106 billion in financial settlements.

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Finance Minister Mohammed Al-Jadaan said Tuesday the state has collected $13.3 billion from those settlements.

This year’s budget includes a yearlong extension of monthly allowances for civil servants, pensioners and soldiers aimed at buffering the impact of austerity measures. The royal decree extends a monthly payout of around $266 for civil servants and soldiers for another year. Retirees and students will also receive continued allowances.

Figures from 2018 reveal the allowances cost $13.5 billion.

The extension of these bonuses comes at a sensitive time, when many Saudi citizens are feeling the pinch of austerity measures introduced in recent years to shore up state revenue.

The government introduced a 5 percent value-added tax on most goods and services this year. Saudis have also seen their electricity and water bills skyrocket as subsidies are reduced.

To help ease the burden of these new measures, the government began a cash assistance program this year for lower-income families as part of a new welfare system.

Despite these and other measures, like fees imposed on companies that hire foreigners rather than Saudis, unemployment has risen to 12.9 percent. The majority of working Saudis are employed by the government.

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Batrawy reported from Dubai, United Arab Emirates.

The Western Journal has not reviewed this Associated Press story prior to publication. Therefore, it may contain editorial bias or may in some other way not meet our normal editorial standards. It is provided to our readers as a service from The Western Journal.

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