Saudi Arabia to 'take stock' of spending priorities after oil revenue drop
Saudi Finance Minister Mohammed Al-Jadaan said the kingdom would "take stock" of its spending priorities in response to a significant decline in oil revenue, the Financial Times reported on Thursday.
Riyadh plans to maintain its current pace of government spending despite facing widening budget and current account deficits as well as rising debt levels, the minister told the FT.
A finance ministry spokesperson confirmed the comments to Reuters, adding: "As long as the return on investment from additional expenditure is greater than the cost of the debt, then the kingdom will continue spending, while maintaining the sustainability and health of public finance. If it means short-term deficits or short-term rises in debt-to-GDP ratios, that is something we can accommodate and will. Our fiscal position remains very strong, and shall remain so."
Reuters reported last month that Saudi Arabia, with its wealth linked inextricably to oil revenue, faces mounting pressure to raise debt or cut spending after a plunge in crude prices, complicating plans to fund an ambitious agenda to diversify its economy.
Jadaan told the newspaper that he would not be concerned about the deficit widening to 3%, 4%, or "occasionally" 5% of GDP as long as government spending supported non-oil growth.
"Non-oil economic growth is the kingdom's north star and maintaining current spending levels aims to transform the economy in the long term, over several decades," the spokesperson told Reuters.
The kingdom is always ready for multiple oil price scenarios and budgets are driven by priorities, Saudi Economy Minister Faisal Alibrahim said at a forum in Doha last week.
Jadaan said Saudi Arabia aimed to avoid the "trap of booms and busts" by pursuing countercyclical policies and prioritising growth over short-term fiscal balance, the FT said.
Saudi Arabia has been ramping up oil refining operations to capitalise on strong margins, helping offset revenue lost to weaker crude prices and exports.
While crude prices are likely to remain at current levels or even lower for most of the year given the surge in supplies and demand uncertainty, the increased refining operations offer Riyadh an effective tool to manage oil price volatility and to better withstand a protracted price war.