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Three words come to mind when looking at the Saudi budget: Prudence, realism and responsiveness.

Like all economies, ¶¶Òõ¶ÌÊÓƵ was affected by the pandemic. The Ministry of Finance (MoF) expects GDP to decline by 3.8 percent in 2020 and rise by 3.2 percent for 2021.

The MoF forecasts the 2021 budget to have revenues of SR846 billion ($225 billion), expenditures of SR990 billion and a deficit of SR145 billion — 12 percent compared to 4.5 percent in 2019. The MoF foresees the budget deficit to be lowered to 5.1 percent in 2021, which would be a great achievement.

Public debt is expected to steadily grow from SR854 billion in 2020, or 34.4 percent of GDP, to SR1.029 trillion in 2023, at which point it will reach 31.8 percent of GDP. This is low by international comparison and prudent, given the Kingdom’s debt capacity. It underlines the maxim of prudent and sustainable financial management, which the MoF pre-budget statement highlights repeatedly.

Observers expect reserves to remain stable at SR346 billion, or 14 percent of GDP, which is important in view of maintaining the dollar peg.

2020 was a difficult year for the global economy and ¶¶Òõ¶ÌÊÓƵ was not spared from the ramifications of the COVID-19 pandemic.

The country was particularly impacted by the double effect of lower prices and lower production of oil, which could be felt in the government coffers. OPEC’s latest Monthly Oil Market Report expects global oil demand to have fallen by 9.77 million bpd in 2020 and to rise again by 5.9 million bpd in 2021. Oil prices plummeted in April and recovered only recently to pre-pandemic levels. On top of that, OPEC+ (a grouping of the OPEC nations and 13 non-OPEC allies) cut production drastically: According to S&P Global Platts, this resulted in Saudi production cuts between May and November ranging between 3.42 million bpd and 1.99 million bpd below the baseline of 11 million bpd.

On the positive side, the Aramco dividend is welcome: It amounts to a guaranteed $75 billion and 98 percent will accrue to the government.

2020 was a difficult year for the global economy and ¶¶Òõ¶ÌÊÓƵ was not spared from the ramifications of the COVID-19 pandemic.

Cornelia Meyer

The share of non-oil revenue to the budget rose from 34 percent in 2019 to an expected 41 percent in 2020. The increase of VAT from 5 percent to 15 percent as of July contributed to this result. Furthermore, it proves the validity of Vision 2030, which aims to wean the country off its dependency on oil.

Raising VAT constituted a countercyclical measure and has to be seen in the context of the government looking at additional revenue streams in a bid to ensure fiscal stability.

In the same vein of prudent and sustainable financial management, KSA’s macro financial COVID support package amounted to 3.4 percent of GDP, which is low by G20 standards and especially compared to its GCC neighbors UAE, Bahrain and Oman, where packages amounted to between 25-30 percent.

Guaranteeing 60 percent of salaries for Saudis employed in the private sector and an extra SR47 billion for health care proved the government’s efforts to minimize the adverse effects of the pandemic on the population and ensure adequate health care in the midst of a pandemic.

Budget spending focuses on the following priorities: Support Vision 2030, combat the pandemic and its possible effects, flexibility to deal with developments and risks and allow increased private sector participation in infrastructure development.

All in all, what we have seen of the budget looks realistic and certainly lives up to the standards of fiscal prudence and macro prudential stability.

• Cornelia Meyer is a Ph.D.-level economist with 30 years of experience in investment banking and industry. She is chairperson and CEO of business consultancy Meyer Resources. Twitter: @MeyerResources