Saudi Arabia to spend big after economy shrinks for the first time in eight years

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A view shows Saudi Aramco’s Abqaiq oil facility in eastern Saudi Arabia in this undated handout photo. Photo: Reuters

Published: 10:22am, 20 Dec 2017Updated: 10:23pm, 20 Dec 2017

Saudi Arabia said on Tuesday its economy contracted for the first time in eight years due to painful austerity measures as it announced record spending to stimulate growth.

The OPEC kingpin said gross domestic product for 2017 shrank by 0.5 per cent due to a drop in crude production in line with an agreement with major oil producers aimed at boosting prices.

The last time the Saudi economy contracted was in 2009, when GDP fell 2.1 per cent after the global financial crisis sent oil prices crashing.

Riyadh also posted a higher-than-expected budget deficit in 2017 and forecast another shortfall next year for the fifth year in a row due to the drop in oil revenues.

Saudi Finance Minister Mohammed al-Jadaan (right), Minister of Economy and Planning Mohammed al-Tuwaijri (centre) and Saudi Arabian Monetary Agency Governor Ahmed al- Khulaifi take part in a press conference during which officials announced the state budget for 2018, in Riyadh, on Tuesday. Photo: Agence France-Presse

It announced an expansionary budget for 2018, projecting the highest spending ever despite low oil prices in a bid to stimulate the sluggish economic, saying it expects the GDP to grow by 2.7 per cent.

Spending was projected at 978 billion riyals (US$260.8 billion), up 10 per cent on 2017 estimates, the Saudi finance ministry said in a statement.