Saudi likely to tap multiple funding sources to bridge budget gap

External borrowings vital for reducing pressure on domestic liquidity

Published: 13:05 January 1, 2017Gulf News

Dubai: In the absence of further increase in oil prices and or drastic cut in government expenditures, analysts expect Saudi Arabia’s budget gap to be wider than the original estimates and will have to resort to multiple funding options to cover the fiscal deficit in 2017 and beyond.

Saudi Arabia has forecast a substantially lower deficit of SAR 198 billion ($53 billion) in 2017, about 7.7 per cent of 2017 GDP estimates.

“We forecast that Saudi Arabia’s fiscal deficit will narrow to about SAR262 billion, equivalent to 10.9 per cent of GDP, in 2017 (from 16.8 per cent in 2016). The lower deficit will largely be due to the higher oil price and weaker spending,” said Monica Malik, chief economist of Abu Dhabi Commercial Bank (ADCB).

The standby measures to fund the budget deficit could include further drawdown of FX reserves, debt issuance and utilisation of government deposits in the banking sector.

Saudi Arabia’s foreign exchange (FX) reserve position saw another significant fall in 2016, but it remained comfortable on a historical basis. Net foreign assets (NFA) held by SAMA [Saudi Arabian Monetary Agency] fell from a peak of $737.1 billion in August 2014 to $535.9 billion in October 2016, their lowest level since December 2011.

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