By Davide Barbuscia and Marwa Rashad
RIYADH (Reuters) - Saudi Arabia announced a 1.02 trillion riyal ($272.00 billion) budget for 2020 on Monday, a slight fall in spending that reversed three years of expenditure increases intended to spur growth.
Revenues in 2020 are forecast at 833 billion riyals, widening the budget deficit to 187 billion riyals, or 6.4% of gross domestic product (GDP), compared with a projected deficit of 131 billion riyals, or 4.7% of GDP, in 2019, according to the budget document.
Finance Minister Mohammed al-Jadaan told reporters the 2020 budget was conservative on revenues because of the global economic outlook, but the government would continue to pay a cost of living allowance to citizens.
The Saudi state news agency SPA quoted Crown Prince Mohammed bin Salman as saying: "The 2020 budget comes amid challenges, risks and protectionist policies facing the global economy, which requires flexibility in managing public finances."
State-owned oil giant Saudi Aramco is to be listed this week. Finance Minister Jadaan said the proceeds from Aramco's share offering would be reinvested, helping to create more revenue channels for the government.
"We are determined to continue executing the economic reforms and diversifying income sources, including re-investing the proceeds of the Aramco IPO through the Public Investment Fund," King Salman said at a budget cabinet meeting, referring to the Saudi sovereign wealth fund.
Aramco priced its initial public offering at 32 riyals ($8.53) per share last Thursday, raising $25.6 billion and beating Alibaba Group Holding Ltd's (N:BABA) record $25 billion listing in 2014.
"The (2020 budget) revenue projections look realistic in our view – oil and non-oil," said Monica Malik, chief economist at Abu Dhabi Commercial Bank. "The pullback in current expenditure could be more difficult."
Allocations to so-called general items – including spending on government pensions, social insurance and subsidies – are forecast to increase to 141 billion riyals next year from a projected 121 billion in 2019.
Riyadh, which is trying to exit the war in Yemen, plans to cut military spending by 8% to 182 billion riyals. Oil revenue is expected to fall to 513 billion riyals in 2020, from an estimated 602 billion riyals in 2019, the budget document says.
The government does not disclose the oil price assumption it uses for its budgetary forecasts. But Malik said that in Brent crude terms, it was likely the budget was based on $62-63 per barrel, assuming crude production at around 9.8 million barrels per day.
Mazen al-Sudairi, head of research at Al Rajhi Capital, estimated the oil price assumption for the 2020 budget to be $55 per barrel, based on production levels of 9.9 million barrels per day.
The government expects real GDP growth at 2.3% in 2020, after a projected 0.4% growth in 2019.
The new 2019 projection is lower than earlier official forecasts, and down from 2.2% in 2018, as growth has been hurt by lower oil prices and crude production cuts agreed by OPEC nations and producers outside the exporting group.
Riyadh's budget announcement follows an agreement late last week by OPEC and its allies to deepen crude output cuts by 500,000 barrels per day until March 2020, which could weigh on the Saudi economic recovery in early 2020.