Saudi cuts spending as deficit rises in 2020 budget

10 December 2019
Riyadh focuses on privatisation as it unveils lower spending and rising deficit in 2020 budget

Saudi Arabia's budget deficit is projected to rise by nearly 43 per cent in 2020 as lower oil prices and cuts to oil output hit the kingdom's core income streams.

Announcing Saudi Arabia's 2020 budget on 9 December, the Ministry of Finance said the kingdom's budget deficit was set to rise to about SR187bn in 2020, an increase of 43 per cent on the 2019 deficit.

As a percentage of GDP, this will see Saudi Arabia's budget deficit rise to 6.4 per cent of GDP in 2020, more than one third higher than the 4.7 per cent figure in 2019.

The projected rise in the budget deficit in 2020 adds new pressure to the kingdom's finances and Riyadh has responded by cutting its spending plans for the year.

The Ministry of Finance announced SR1.02tn ($272bn) in budget spending for the year, which is about 2.6 per cent down on the SR1.048tn ($279bn) in estimated actual spending in 2019, and about 7.8 per cent down on the SR1.106tn budgeted spend announced one year ago, the highest budget ever announced by Saudi Arabia.

2018 (actual)2019 (budget)2019 (estimate)2020 (budget) 2021 (projection)2022 (projection)
Total revenues (SR bn)906975917833839863
Oil revenue (SR bn)513
Non-oil revenue (SR bn)315
Total expenditure (SR bn)1,0791,1061,0481,020990955
Budget deficit (SR bn)-174-131-131-187151-92
Deficit to GDP ratio (%)-5.9-4.2-4.7-6.4-5.0-2.9
Source: Budget statement, Ministry of Finance, Saudi Arabia, 9 December 2019


The finance ministry said it did not expect the higher budget deficit in 2020 to translate to significantly higher levels of debt, which it said will stand at about SR76bn in 2020.

The additional debt will push up Saudi Arabia’s total debt to SR754bn by end of 2020, equivalent to 26 per cent of GDP, up two percentage points over the previous year.

2018 (actual)2019 (budget)2019 (estimate)2020 (budget)2021 (projection)2022 (projection)
Debt (SR bn)560678678754848924
Debt to GDP ratio (%)192224262829
Source: Budget statement, Ministry of Finance, Saudi Arabia, 9 Dec 2019

Macroeconomic trends

The finance ministry said that it expected Saudi Arabia's GDP to grow 2.3 per cent in real terms in 2020, significantly up on the 0.4 per cent growth it is forecasting  for 2019.

While Saudi Arabia is estimated by Riyadh to have achieved 2.5 per cent real growth in Saudi Arabia's non-oil economy in 2019, this is offset by a -1.0 per cent contraction in its oil economy in 2019.

The statement said that Saudi Arabia's GDP growth is expected to slow to about 2.2 per cent in 2021 before rebounding to about 2.3 per cent in 2022.

20182019 (estimate)2020 (projection)2021 (projection)2022 (projection)
Nominal GDP (SR bn)2,8112,9023,0273,143
Real GDP growth (%)
Real oil GDP growth (%)-1.0
Real non-oil GDP growth (%)2.5
Inflation (%)-
Source: Budget statement, Ministry of Finance, Saudi Arabia, 9 Dec 2019


Budget breakdown

Education makes up the largest portion of the budget at 19 per cent, while there will be a considerable reduction in defence spending for the second year running, with a decline of 8 per cent.

At SR504bn, public sector wages is expected make up nearly half the entire budget, although this is just up from 48 per cent in 2019.

Spending on pensions, social insurance and financing costs is expected to show yearly rises.

Budgeted capital spending totals SR173bn, marginally up from SR172bn in 2019.

Saudi Arabia’s two key sovereign wealth funds, the Public Investment Fund (PIF) and National Development Fund (NDF), are expected to take the lead in investments.


The budget statement sets out a total of SR833bn in revenues.

The bulk will continue to come from oil and refined product exports, but Riyadh has also budgeted non-oil revenues at SR320bn in 2020.

The marginal growth of 2 per cent over 2019’s actual total of SR315bn is a sign that Saudi Arabia’s ambitious economic reforms are beginning to take hold.

The finance ministry does not traditionally set out its forecasted average crude oil price for the year in its budget statements, but does include an overall figure for 2020 revenues reaching SR513bn, down 14 per cent year-on-year due to a subdued outlook for the oil markets.

The IMF forecast in October that Saudi Arabia would need oil prices to average $83.60 a barrel in 2020 to balance its budget.

However, the finance ministry has shown it is more than happy to run deficits, as shown in the latest statement.

Riyadh-based Jadwa Investments calculates Saudi Arabia is using an export price of $60 a barrel with production at 9.8 million barrels a day (b/d) for the revenue figures set out by the finance ministry.

Globally, crude has been on a downward trajectory since the beginning of the year, and benchmark Brent oil prices for 2019 have averaged around $65 a barrel, having hit a high of $71 a barrel in April.

The oil market continues to face difficulties, with oil producers’ group Opec projecting its lowest demand growth since 2012 next year.

Aramco valuation

The role of energy giant Saudi Aramco will be key to the kingdom’s planned capital investments going forward with the proceeds of the long-expected $29.4bn initial public offering (IPO) moving into the PIF.

This is in addition to the PIF’s sale of its 70 per cent stake in Saudi Basic Industries Corporation (Sabic) to Aramco for $69bn.

The announcement of the budget comes just after the IPO of state-owned Saudi Aramco, as it listed on the Tadawal stock exchange in Riyadh. The IPO was more than 4 times oversubscribed.

Shares are due to begin trading on the Tadawul on 11 December.

Priced at SR32 a share, the sale of 1.7 per cent of Aramco is expected to raise $29.4bn, giving it a valuation of $1.7tn. This would easily make it the world’s most valuable publicly traded company, and significantly higher than tech giants Apple and Microsoft worth around $1.2illtn each.

However, there are many who are unconvinced. On 9 December, Aramco announced it was increasing the amount of shares it was issuing from 1.5 per cent, but this is still well short of the original plan outlined by the crown prince to sell 5 per cent on an international exchange to raise $100bn, and give Aramco a $2tn valuation.

The local listing, and a combination of incentives and appeals to patriotic sentiments, meant the shares have sold largely to optimistic Saudi citizens and institutions.

Already dependent on the state for subsidised energy and tax revenues from oil, the investors will now be looking to Aramco for a dividend. This may depend heavily on oil prices, and the ability of Opec and its allies to boost prices.

The oil producer’s group met last week in Vienna, agreeing to reduce output by another 900,000 b/d, taking the total cuts to 2.1 million b/d, at least until March.

Under the new deal, Saudi Arabia pledged to produce 9.744 million b/d, well under its 10.144 million b/d quota.

This defensive strategy aims to prevent global oil inventories from building again, and to firm up prices. It has broadly worked in 2019, according to analysts at MUFG Bank, limiting downside price action in the face of weakening global oil demand growth and robust US supply growth.

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