The oil-dependent kingdom announced its biggest budget ever as it tries to boost growth financed by higher oil revenue and more tax.

Riyadh wants to spur growth with more spending that it intends to finance through higher oil revenue and taxes.
Riyadh wants to spur growth with more spending that it intends to finance through higher oil revenue and taxes. (Reuters)

Saudi Arabia on Tuesday announced the biggest budget in its history with planned expenditures of $261 billion in 2018, as the Kingdom’s economy contracted for the first time in eight years. 

The government forecasts a boost in revenue from the introduction of a sales tax, plans to further reduce subsidies and a modest rise in oil prices.

The Arab world's largest economy and one of the world's top oil producers was hit by a drop in oil prices more than three years ago, but austerity measures have helped ease the blow.

Revenue is expected to reach $209 billion, with income from oil making up the bulk of that at 63 percent. 

Revenue for this past year reached $186 billion.

But the economy suffered due to painful austerity measures. 

The kingpin of the OPEC –  Organization of the Petroleum Exporting Countries – said gross domestic product for 2017 shrank by 0.5 percent 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 percent 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 Arabia, meanwhile, continues to spend heavily on its nearly three-year-long war in Yemen and on acquiring weapons and beefing up its military.

To help ease the burden of planned subsidy cuts next year on electricity, fuel and gas, the government is preparing to distribute cash assistance to low-income families as part of a new welfare system.

Unemployment in Saudi Arabia rose this year to 12.8 percent. 

The kingdom is also urgently trying to attract more international investment and buoy the private sector to create millions of jobs in the coming years. 

However, an anti-corruption purge led by the king's son and heir, Crown Prince Mohammed bin Salman, has raised concerns among international investors.

Source: TRTWorld and agencies