Al-Jadaan: The Fiscal Strategy will Contribute to Reduce the Budget Deficit and Support Fiscal Sustainability and Economic Growth over the Medium TermSep 30, 2018, 12:38:37 PM GMT+3 Government Agencies News Economics News
The Ministry of Finance has organized the 2019 Pre-budget Statement press conference at its headquarters in Riyadh for the first time. The conference was attended by HE Mr. Yaser Al-Quhaidan, Deputy Minister for Budget & Organizational Affairs, HE Mr. Tariq Al-Shohaib, Deputy Minister for Revenues, and Dr. Saad Alshahrani, General Manager of Macro & Fiscal Policies Unit (MFPU) at the Ministry of Finance.
During the press conference His Excellency Mohammed Al-Jadaan, Minister of Finance, stated that the public fiscal strategy will reduce the state deficit and enhance economic growth and fiscal sustainability in the medium term. The successful implementation of several initiatives to develop non-oil revenues, elevate the efficiency of spending, and improve the subsidy beneficiaries' targeting mechanisms has contributed to decrease the budget deficit significantly during the first half of the current fiscal year 2018, to reach SR 41,7 billion, a decrease by SR 31 billion compared to the same period of the previous year. This is despite the growth of expenses by 26% during the period of comparison.
He also said that the issuance of the 2019 pre-budget statement, for the first time, is an implementation of the government's policy in developing the preparation process of the general budget, and intended to strengthen the Kingdom's trend towards realizing further disclosure and transparency. The pre-budget statement reviews the major initiatives and policies targeted in the 2019 budget to achieve the fiscal and economic goals in the medium term. The development of this statement, months prior to the State Budget release, shows the government's efforts in developing the fiscal planning in the Kingdom. The pre-budget statement illustrates the government's tendencies for the next year's budget in terms of expenditure, revenue, deficit and financing, with a possibility of reviewing these estimates in light of local and international financial and economic developments.
He added that Fiscal Balance Program (FBP) – which targeted to be achieved by 2023 – is not limited to fiscal performance, but it aims also at stimulating economic activity and enhancing fiscal sustainability in the medium term through the launching of several initiatives targeting the development of the economic activities, especially in non-oil sectors.
Initiatives such as the Citizens Account Program, the Private Sector Stimulus Package, the implementation of the Kingdom's Vision 2030 programs, as well as the increase in capital/ investment expenses in the budget were launched to speed up the structural reform process that stimulates economic growth and create promising and sustained employment opportunities.
Mr. Al-Jadaan pointed out that preliminary economic results and indicators reflect this progress, with GDP growth of 1.2% in the Q1 of 2018, compared to a negative growth of 0.8% for the same period of last year, due to non-oil GDP recovery by 1.6%, compared to negative growth of -0.3% during the same period last year.
He stressed that the main thrust of the government in the budget for 2019 is the continued implementation of programs, initiatives and projects in accordance with the Vision 2030, which envisions achieving the stated fiscal and economic goals, first and foremost of which is the diversification of the economy, empowering the role of the private sector – in terms of achieving the fiscal sustainability, economic growth, and attaining fiscal balance by 2023. Additional to this is increasing non-oil revenues, raising spending efficiency, continuing progress in fiscal management reforms, providing fiscal space that would allow intervening to fasten the process, when need arises and accelerating realizing fiscal and economic goals, as well as increasing the capacity to absorb external shocks that the economy could face.
As for the economic growth targets for the fiscal year 2019 and medium term, Mr. Al-Jadaan, Minister of Finance, said that several programs and initiatives have been launched to promote the economic growth and diversify the economic base. A group of programs have been implemented during 2018. Other programs will be launched later including structural reforms with medium and long-term economic returns targeting several sectors. He pointed out that the Government aims to strengthen the role of the private sector in driving the economy through a range of programs, including the Privatization Program, which provides the private sector with the opportunity to manage state-owned assets and provide specific public services on behalf of the Government, to increase the contribution of this sector to the economy, and to attract foreign investments.
Moreover, Mr. Yaser Al-Quhaidan, Deputy Minister for Budget & Organizational Affairs, pointed out that the Ministry of Finance has adopted a strategy to develop the preparation process of the general budget, which was started from the first day of the current fiscal year.
He added: "total 2019 budget expenditure is expected to reach SR 1,106 billion, 7% higher than projected expenses for this fiscal year, due to higher financing expenses, subsidies, social benefits, other expenses, capital/ investment expenses as well, due to the government's efforts to boost economic growth. We are taking real steps in developing the process of preparing the general budget in line with the best global practices. This includes procedures for improving the level of governance and transparency and involving government agencies. This is conducted within a clear regulatory framework with defined responsibilities in line with the objectives of Vision 2030.
Furthermore, Mr. Tariq Al-Shohaib, Deputy Minister for Revenues, stated that the government has been in quest for years of minimizing the effects of oil price fluctuations, which remains the main component of budget revenues despite the growth of non-oil revenues, which requires continued implementation of fiscal, economic and structural reforms to diversify revenues in the Kingdom. The Saudi Vision 2030 aims to implement specific fiscal, economic, structural and multi-scale reforms, the most important of which is to achieve fiscal balance in the medium term.
Mr. Al-Shohaib said: "the fiscal procedures and reforms implemented over the past two years have begun to yield positively and directly affect the country's total oil and non-oil revenues, increasing the diversity of revenue sources and become more sustainable. Preliminary estimates indicate total revenues to reach SR 978 billion in 2019, an increase of 11% compared to 2018 projections.
On the other hand, Dr. Saad Alshahrani, General Manager of Macro & Fiscal Policies Unit (MFPU), said that the fiscal encounters several challenges in the medium term. At the forefront of these challenges are the controlling of deficit and public debt, developing of non-oil revenues and minimizing the effects of oil price fluctuations, elevating the efficiency of operating expenses, diversifying the sources of economic activity in the Kingdom, and increasing the role of the private sector in the economic growth.
To address this challenge, the Government has launched several programs and initiatives within this scope, such as the National Industrial Development and Logistics Program (NDC), which aims at developing the industry and local content in several sectors, e.g. renewable energy, military industries, exports and mining; as well as improving infrastructure, supporting exports and establishing the logistics services needed to enable the Kingdom to be unique industrial and logistic platform between the three continents, which will help creating more promising job opportunities for Saudi nationals.
Dr. Alshahrani stated: "these programs and other initiatives, which the government is seeking to implement in the medium term to achieve economic returns to enable the Kingdom to attain a sustainable and promising economy. The Ministry of Finance's preliminary estimates the real GDP to reach 2.3% in 2019. The effects of structural economic reforms in the medium and long term are expected to show higher rates". Adding: "the fiscal reforms aimed at reducing the budget deficit to gain investors’ confidence, as well as privatization programs, the development programs of some of the productive sectors announced in the 2030 Vision programs, and structural reforms in the economy – labor market in particular – are expected to gradual increase the growth of non-oil economic activity". He pointed out that real GDP growth is expected to continue to improve gradually in the medium term, due to growth of the real non-oil GDP.
As for the fiscal targets in the medium term, Dr Alshahrani stated that the fiscal reforms aim to maintain low deficits. The deficit is expected to continue to decline gradually over the medium term, from 4.1% of GDP in 2019 to 3.7% of GDP in 2021, until it reaches the fiscal balance by 2023 driven by an average annual growth rate in revenues of 6%. The Government has set a ceiling for public debt as a percentage of GDP at 30%, as announced in the National Transformation Program 2020 – FBP. This percentage is low compared to the G-20 countries high debt percentages, which reflects the strength of the fiscal position of the Kingdom.
In addition to the fiscal targets, the fiscal strategy in the medium-term aims at developing of sustainable fiscal policies, effective allocation and management of fiscal resources, improvement of financial accounts quality and transparency (pre-budget statement as an example), optimal utilization of state assets and innovative financing.
This strategy contains a range of programs and initiatives, including the implementation of a medium-term fiscal framework. Through this framework, the government is working to determine the expenditure ceilings of government entities within the state revenues' estimates and fiscal and economic performance, as well as the policies and initiatives applied in this regard. The fiscal and economic framework in the medium-term will be contributing in developing the fiscal rules.
These rules will help guiding the fiscal policy principles in the medium and long-term and establishing concrete fiscal objectives, in addition to creating a framework to manage any fiscal risks that may occur in the medium term along with updating fiscal policies to address the local and international challenges.