Riyadh: In an extraordinary session chaired by King Salman, the cabinet of Saudi Arabia on Tuesday announced a 990-billion-riyal budget for 2021. The budget is over seven percent less than the estimated spending for this year.
The spending-cut was decided to narrow the deficit caused by both coronavirus pandemic and falling oil prices.
This year, the Middle East country is expecting a revenue of 770 billion riyals and a deficit of 298 billion riyals i.e., 12 percent of the Kingdom’s Gross Domestic Product (GDP).
Next year, the deficit is likely to narrow to 140 billion riyals i.e., 4.9 of GDP as the revenue is estimated to increase to 849 billion riyals.
The Kingdom plans to balance its budget by the year 2023.
Public debt, reserves
The Kingdom’s public debt is likely to increase from 854 billion riyals to 937 billion riyals next year. Government’s reserves at Saudi Central Bank may fall from 346 billion riyals to 280 billion riyals next year.
Meanwhile, Finance Minister of Saudi Arabia Mohammed al-Jadaan said that most of the economic activities started regaining momentum in the second half of the current year.
Although the price of Brent crude oil climbed up to $50 per barrel after falling to a 20-year low in the month of April, the International Monetary Fund (IMF) estimated that Saudi Arabia can balance its budget next year if the price reaches $67.9 per barrel.
Measures taken by Saudi Arabia to narrow deficit
In order to increase the government’s revenue, the Kingdom has increased the VAT to 15 percent.
To curtail the falling oil prices, Saudi Arabia has reduced the oil output after making deal with OPEC and other producers.
This year, the Saudi oil giant Aramco is likely to pay a dividend of $75 billion. Most of it will be added government’s coffers.