Table 8: Fiscal consolidation measures through 2020 leave undisclosed financing gap
Fiscal measure Annual revenue raised (US$bn) Annual revenue raised (% of GDP) Impact on inflation (ppt) Remark Non-oil revenue measures 100 15.8 - NTP target Fees on excess foreign worker quotas 10 1.6 - NTP target Green-card like program 10 1.6 - NTP target VAT 10 1.6 5 NTP target Subsidy reform 30 47 NTP target Natural gas feedstock for petrochemicals 2.5 0.4 - BofA ML assumption Domestic crude 20.8 3.3 - BofA ML assumption Gasoline 1.4 0.2 0.5 BofA ML assumption Diesel 1.9 0.3 - BofA ML assumption Other measures 40 6.3 - NTP target Land tax 11 1.7 - BofA ML assumption Remittance tax 2.3 0.4 - BofA ML assumption Income tax on expatriates 3.9-7.8 0.6-1.2 - BofA ML assumption Sin tax on tobacco 0.7 0.1 0.1 BofA ML assumption Sin tax on sugary drinks 1.4 0.2 0.4 BofA ML assumption Memo: Undisclosed revenue financing gap 16.8-20.7 2.7-3.3 - BofA ML assumption Cost savings Annual savings (US$bn) Annual savings (% of GDP) 20% cut to on-budget non-oil subsidies 0.2-0.8 0.1-0.5 - BofA ML assumption 5% cut to the wage bill 6.4 1.0 z NTP target Cost increases Annual cost increase (US$bn) Annual cost increase (% of GDP) NTP costs (US$71.5bn) 14.3 2.2 NTP target
Source: National Transformation Plan, BofA Merrill Lynch Global Research
Chart 18: Breakdown of electricity consumption by sector Chart 19: Water consumption by sector
Municipal, 9% Industh¥Qs %
Agriculture, 88% m Residential = Commercial m Industry = Government m Other Agriculture Source: SAMA, BofA Merrill Lynch Global Research. Data as of 2015. Source: UN, BofA Merrill Lynch Global Research. Data as of 2010.
Budgeted defence spending — up or down
Localization policies in the defence industry could help cut imports (total defence imports of USS$9.8bn equivalent to US$1.5bn or 6% of total imports in 2015, according to consultancy IHS) and conserve Fx reserves, but we expect this to be a slow and gradual process. We think that large defense imports are typically amortized over a number of years. Defence spending is an important part of fiscal spending in Saudi Arabia, accounting for c30% of total budgeted spending. Defence spending in 2016 was budgeted at SAR213bn (US$56.9bn; 9.0% of GDP), down from SAR307bn (US$81.8bn; 12.7% of GDP) in 2015. Increased military and security projects in 2015 saw an additional overspend of SAR2Obn last year. It is unclear to us if all of the regional military costs have been recognised on-balance sheet. A negotiated settlement to the Yemen conflict through the ongoing political negotiations in Kuwait could help contain security spending near-term.
22 GEMs Paper #26 | 30 June 2016 3S Merrill Lynch
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