Despite the global environment of lower oil prices, the Kingdom has maintained a high level of spending in the 2016 fiscal budget, Jadwa Investment in a report a day after the new Saudi budget was announced. Education and healthcare remain the focus of government spending, accounting for 35 percent of total spending, while spending on military and security services constitutes the largest single share at 25 percent. A new allocation accounting for 22 percent has been introduced to support the budget and help address shortages in revenue. "We estimate that budgeted investment spending has been reduced to SR204 billion in 2016, with spending on key social infrastructure projects maintained. This points to a gradual consolidation in the fiscal stance, but also shows the government's sustained commitment on maintaining a high level of spending on human capital and social infrastructure." Jadwa report further said the government has reaffirmed its commitment to support the economy by budgeting for a SR326 billion deficit in nominal terms, based on revenues of SR514 billion and expenditures of SR840 billion. The deficit will continue to be financed using a combination of Saudi Arabian Monetary Agency's (SAMA) huge stock of net foreign assets, and domestic debt. SAMA's net foreign assets totaled $640 billion at the end of October, while public debt rose from a long-term low of SR44.3 billion in 2014 to reach SR142 billion in 2015, yet still low relative to GDP at 5.8 percent, the report noted. Jadwa forecast that a price of 40.3 pb for Saudi export crude (around $42.8 pb for Brent) and production of 10.2 million barrels per day (mbpd) are consistent with the revenue projections contained in the budget. "We expect both revenues and expenditures in 2016 to be above the budgeted level, but the differential will be smaller as the government becomes more prudent in its spending procedure. We forecast a budget deficit of SR313 billion (12.6 percent of GDP) based on oil price of $47 pb for Brent in 2016," Jadwa said. Morever, a National Transformation Program (NTP) will likely be announced by the government in January, providing a roadmap for major social and economic initiatives to be undertaken in the next five years. "We have already seen some elements of these major initiatives announced today along the budget such as domestic energy price reform which should have a positive impact on non-oil revenue while at the same time curb the growth in energy consumption," Jadwa added.
