Saudi 2016 budget deficit said to be smaller than expected

Saudi Arabia’s 2016 budget deficit is likely to be smaller than originally projected because of the drastic austerity measures taken by the government, Reuters said, citing analysts and bankers.

Some economists think next year's budget may be modestly expansionary in nominal terms.

The government may also impose higher energy fees, which will allow the kingdom to spend more to boost its economy in 2017. Saudi Fransi Capital predicted a 20 percent hike in electricity tariffs and a 40 percent rise in gasoline prices, for example.

The country, however, might not raise the cost of natural gas feedstock for firms, as it did in the 2016 budget, in order to support the petrochemical industry, some analysts told Reuters.

Hit by low oil revenue, the kingdom’s economic growth slowed sharply and speculators bet against the Saudi currency as the government struggled to curb a budget deficit that reached a record SAR 367 billion in 2015. 

"Next year there will be a much more balanced budget and increased focus on creating jobs and development projects that directly help the economy," a senior Saudi banker told Reuters.

Economist Ihsan Bu Hulaiga forecast the budget would be designed to "move out from low economic growth to higher growth.”

Drastic spending cuts overseen by King Salman's son, Deputy Crown Prince Mohammed bin Salman, appear to have cut the deficit significantly beyond the SAR 326 billion originally planned in the 2016 budget.

Higher oil prices after OPEC and non-OPEC countries reached a production cut deal should help the oil-dependent economy. Brent crude is now at $55 a barrel compared to an average of $45 this year.

Measures to increase non-oil revenue such as higher municipal service and visa fees, and land tax on undeveloped land plots, should help the overall economic situation in 2017 because they are already in place.

The 2016 budget had projected spending of SAR 840 billion, down from an actual spending of SAR 975 billion in 2015.