Saudi plans spending cuts, revenue push to shrink 2016 budget deficit

Saudi Arabia’s stock market may be thinly traded on Monday as investors await the announcement of the 2016 state budget plan, expected around the close of trading, while Dubai’s expansionary spending plan for next year may support that bourse.

Experts believe the kingdom, the world’s largest oil exporter, will press ahead with mega priority projects, undeterred by the downhill slope crude oil prices have taken since the beginning of the current year.

The government expects the 2016 deficit to narrow to 327 billion riyals ($87 billion) from 367 billion in 2015.

The plan suggests the Kingdom is not counting on a major recovery of oil prices any time soon but is instead preparing for a multi-year period of cheap oil.

The International Monetary Fund and other institutions have advised Riyadh and other Gulf countries, which rely heavily on oil income, to diversify their economies and reduce spending, especially on generous state subsidies and wages. Its 2016 budget plan aims to cut that to 326 billion riyals, reducing pressure on Riyadh to pay its bills by liquidating assets held overseas.

The deficit for this year is expected to come in at about 400-500 billion riyals ($107-133 billion), around 20 percent of gross domestic product, prominent Saudi economists estimate. Key officials are scheduled to discuss the budget and outline the kingdom’s economic policy at a news conference on Monday in Riyadh.

The Saudi Finance Ministry said in a statement on its website that loans are aimed to avoid effecting the cash flow in the banking sector.

The government plans to introduce a value-added tax in coordination with other countries in the region, and raise taxes on soft drinks and tobacco, the ministry said without giving a timeline.