Fiscal Policies in the Kingdom

Fiscal policies in the Kingdom of Saudi Arabia involve the management of all instruments of government spending and revenues, including state-owned assets and liabilities. Through these policies, the government aims to achieve a set of economic goals, such as macroeconomic stability, optimal resource allocation to ensure full employment, income redistribution, and financial sustainability.

Fiscal policies are a cornerstone of macroeconomic policies, encompassing monetary policy, the real economy, and external affairs (balance of payments). They aim to align fiscal policies with other economic policies to realistically achieve desired goals, as fiscal policies comprise a set of plans and tools, implemented within a systematic and operational framework to achieve equilibrium between revenues and expenditures, serving as one of the primary macroeconomic policies for fostering economic growth.

Fiscal policy trends are categorized into two types. First, expansionary fiscal policy is employed by the government during economic recessions. This policy involves increasing liquidity within the country through heightened government spending or tax reductions, with the objective of stimulating the economy to restore economic and social equilibrium.

Second, contractionary fiscal policy is implemented by the government to address inflationary gaps. This policy entails reducing liquidity within the country through decreased government spending, tax hikes, or a combination thereof, with the aim of curbing demand to restore economic and social equilibrium.

Fiscal policies support the macroeconomy and monitor its performance, rendering it more susceptible to growth and development. Moreover, these policies align with the objectives set forth by Saudi Vision 2030, aiming to construct policies that foster the diversification of non-oil revenue streams within the existing policy to fulfill the state’s objectives and directives in expanding revenue sources. The significance of government fiscal policies amplifies, given their role in orchestrating financial resources and guiding the state's economic activity, a common trait in oil-dependent economies. The economy can suffer from the negative impacts of declining oil prices if the government fails to implement adequate measures to mitigate these effects.

Fiscal policies also target economic growth and the maintenance of its gains and stability during crises. Therefore, public fiscal policy in the Kingdom plays a major role and usually focuses on three main goals: achieving economic growth and stability, ensuring financial sustainability, and fostering intergenerational justice.

The Ministry of Finance is dedicated to proposing general fiscal policies aimed at achieving a balance between maintaining fiscal stability, promoting sustainable economic growth, and supporting the economic and social transformation of the Kingdom as outlined in Saudi Vision 2030.

In alignment with the requirement of Saudi Vision 2030, fiscal policies focus on the development of revenue and expenditure structures together. These policies gradually increase the proportion of non-oil revenues to total revenues in the medium term while continuing to allocate resources to Vision Realization Programs, megaprojects, and initiatives to foster and develop the private sector. Simultaneously, efforts are made to alleviate the burdens of economic and structural reforms through targeted social support programs.

In collaboration with financial system entities, such as the Expenditure and Project Efficiency Authority, the Non-Oil Revenue Development Center, and the National Debt Management Center, the ministry is executing a range of strategic programs aimed at enhancing financial sustainability and improving economic performance. These initiatives, part of the Fiscal Sustainability Program, include developing a medium-term public finance framework, enhancing revenue collection procedures, implementing medium-term financial planning, establishing a framework for managing the state’s sovereign assets and liabilities, maximizing government revenues from the Zakat, Tax, and Customs Authority, and establishing a debt policy and the National Debt Management Center.

The financial administration achieved significant gains that positioned the Kingdom to compete with G20 countries. It implemented a series of measures in fiscal policy to address the global financial and economic crisis. In 2013, it announced the continuation of its investment program in government and oil sectors, spending USD400 billion over five years, the largest stimulus program among G20 countries as a percentage of gross domestic product.

With the commencement of Saudi Vision 2030 programs, aimed at fostering a thriving economy, fiscal policies leveraged available procedures and tools to achieve the goals of ensuring diversification and comprehensive sustainable economic growth, maintaining financial sustainability and economic stability, and enhancing effective social support and protection.

Fiscal policies in the Kingdom are characterized by flexibility and speed in responding to and dealing with various developments. For instance, in 2020, the government demonstrated rapid responsiveness in addressing the COVID-19 pandemic. It pursued balanced fiscal policies aimed at mitigating the pandemic's impact while maintaining economic growth and financial sustainability. The government prioritized actions according to the stage requirements, such as halting the cost-of-living allowance, bolstering the health sector, implementing exemptions and extensions of government fees, increasing the value-added tax to 15 percent, and augmenting borrowing to finance heightened financing needs. These measures ensure the sustained flexibility of the financial system.

The program aims to achieve financial sustainability by enhancing government effectiveness and supporting economic growth through the optimization of government spending efficiency and the implementation of fiscal policies focused on improving the quality of financial planning. Additionally, it seeks to enhance the flexibility of public finances in dealing with crises and to maximize government revenues while considering the impact on the private sector. This is achieved by integrating non-oil revenues and related tools into economic activities.

The Kingdom's fiscal policies have received robust backing from government reforms in the economic sector, significantly contributing to the reduction and management of the budget deficit. Concurrently, the government has implemented stimulus measures, resulting in positive outcomes aligning with fiscal policy objectives amid the non-oil economy's sustained growth up to 2023.

In alignment with the state's direction to adopt international best practices, the Council of Ministers endorsed the Law of Systemically Important Financial Institutions in 2020. This empowers the Saudi Central Bank to effectively supervise and regulate important financial establishments, thereby ensuring monetary and financial stability while safeguarding the financial system against adverse impacts, consistent with G20 and Fiscal Stability Board recommendations.

To achieve the objectives of the state's fiscal policies, the government is focused on the nationalization of numerous sectors and implementing new projects across various sectors to provide more job opportunities for citizens. Furthermore, efforts continue towards economic diversification and bolstering promising economic sectors like tourism and sports.