Saudi Arabia has announced a SR 978 billion budget for 2018, describing it as the largest budget in its history in terms of spending. Perhaps the most significant contribution to the budget this year was its adoption of an advanced method of financial engineering to expand the “tools” in the hands of the state in an unprecedented manner. The budget, which in the past has been 90 percent dependent on oil revenues, is this year not more than 50 percent based on revenue from oil. The remainder is 30 percent from non-oil revenues, 12 percent from public debt and 8 percent from government funds.

An important and very striking point is that although the budgeted expenditure for 2018 is SR 978 billion, it represents only 88 percent of the total expenditure. This indicates two important points. The first is that there is an additional investment expenditure of the state amounting to SR133 billion – SR 83 billion from the Public Investment Fund and SR 50 billion from national development funds.

The second point is that in the budgeted expenditure, which is SR 978 billion, SR 205 billion is capital expenditure, which means that the total capital expenditure will be SR 338 billion riyals in the 2018 budget, equivalent to 13.5 percent of GDP.

This historic budget comes at an oil price of $60 per barrel, while the highest budget in the history of the Kingdom before this year was when the price of oil was $120 per barrel.

It is very clear that the state has decided that investment funds will be the main instrument of the Saudi economy. The state has set two strategic objectives in the fiscal balance program on which the budget is based. The general reserve should not be less than SR 200 billion and the ratio of public debt to GDP not more than 30 percent. The increase in expenditure exceeded 13 percent and non-oil revenues grew by an unprecedented amount to SR 256 billion.

Nine programs will be launched in 2018 to increase growth. The challenge of unemployment and curbing inflation will be the most important to the Saudi economy. These challenges may be eased to some extent by Aramco’s IPO during 2018 and funds collected from the war on corruption that will be directed to the housing program, according to the Minister of Trade and Investment.

The 2018 budget involves unprecedented professional preparation and methodology. It is clear that the state has decided to return to being the primary economic instrument and to maintain capital spending that is worthy of the ambitious and important Vision 2030. The 2018 budget should be welcomed by Saudis because of its bold and ambitious methodology.