Saudi Arabia is projecting a 2017 budget deficit of about $53 billion with a lower than expected shortfall for 2016, after the government has been cost-cutting in response to lower global oil prices.

Expenses next year will reach $237 billion with a revenue of just $184 billion, the cabinet announced in a statement. The 2016 deficit will be $79 billion, which is down 8.9 percent from the forecast laid out in the budget.

“This budget comes at a time of a highly volatile economic situation… and which led to a slowdown in world economic growth and a drop in oil prices that impacted our country,” King Salman said on official television, with Finance Minister Mohammad Al Jadaan seated nearby at a table of cabinet ministers.

Revenues for this year are expected to be $140 billion, with spending expected to come in at $219 billion, 1.8 percent lower than forseen.

 

Cutbacks

Saudi Arabia is the world’s biggest oil producer and froze major building projects, cut cabinet ministers’ salaries and imposed a wage freeze on civil servants due to the $97 billion deficit.

A year of cutbacks left retailers complaining of lower sales and local populations saying they had less disposable income.

“Given the opaqueness of policy announcements, the budget will provide investors with an opportunity to gauge the government’s commitment to fiscal austerity,” Capital Economics wrote in a pre-budget briefing.

Oil prices were above $100 per barrel in 2014, but by mid 2016 they had sunk to below $40, though they have recovered slightly – back to $55 currently. This plunge has led to central government in Riyadh to intensify their efforts in economic reform. This is led by Salman’s son, Deputy Crown Prince Mohammad Bin Salman, 31.

In April he released the ‘Vision 2030’ programme which intends to diversify the heavily oil dependant economy. The main meat of the plan is to float less than 5 percent of the state oil company, Saudi ARAMCO. The proceeds will help form what would be the world’s largest investment fund, holding about $2 trillion in assets.

The IPO is rumoured to take place in 2018 and would be the largest in history.