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Spending path is unclear and is flattish (excluding NTP costs) in the best case The spending path targeted or assumed by the NTP is unclear and does not appear to match realized outturns. It may suggest that spending is likely to remain flattish, excluding NTP costs. However, the indicative level spending would settle at is around peak 2014 expenditures levels and well above the 2015 realized spending and 2016 budgeted levels. While 2015 spending could have been understated and may be revised higher, at least SAR88bn from the 2015 spending is non-recurrent as it relates to the one-off Saudi Royal edicts decreed upon King Salman’s accession. Going by the indicated 2020 target for the share of the wage bill in total spending, this would suggest that government spending is targeted at SAR1,140bn in 2020. This represents a 2.7% increase over peak 2014 spending levels and 16.5% increase over 2015 actual spending levels. Excluding the NTP annual costs, this suggests that government spending should still increase by 11% over 2015 levels and drop by 2% over 2014 spending in nominal terms. In our view, given the lack of precise spending targets, one way of remaining consistent is to use the two NTP figures for wages and infer the NTP fiscal spending from the stated share of wages in total expenditures. This would suggest that fiscal expenditures would reach SAR1,140bn in 2020, from SAR1,067bn in the base year (unstated in the NTP). This is a 6.8% increase, but excluding the NTP costs, is just 1.8% higher. As such, in the best case scenario, we think the NTP suggests flattish spending, excluding NTP costs. If we instead take the NTP level of spending inferred to be the correct amount, this would materially widen the fiscal deficit by SAR190bn (8.0% of GDP) and would be deeply negative for the sustainability of the fiscal and Fx stance, in our view. Fiscal adjustment burden shifts to raising revenue, oil prices and exports The possible flattish spending implication of the NTP would tend to indicate that the bulk of the spending cuts are now beyond us. Government projects are likely to continue to be prioritized, likely according to their economic benefits and relevance to the NTP. Flattish spending will thus shift the burden of forthcoming fiscal adjustment on raising non-oil revenues, raising hydrocarbon exports and a sustained recovery in oil prices. Table 6: National Transformation Plan-related spending across government entities (2016-2020) Cost (SARbn) Cost (US$bn) % of total Ministry of Housing 59.2 15.8 22.0 Royal Commission for Jubail and Yanbu 41.6 11.1 15.5 Ministry of Education 24.4 6.5 9.1 Ministry of Health 23.1 6.1 8.6 Ministry of communications and IT 14.9 4.0 5.6 Ministry of Agriculture 13.9 Sul 5.2 Ministry of Water and Electricity 12.9 3.4 48 Saudi Commission for Tourism & National Heritage 10.5 2.8 3.9 King Abdulaziz City for Science and Technology 8.3 2.2 3A Ministry of Labor res) 2.1 3.0 General Presidency of Youth Welfare 78 2.1 2.9 Ministry of Transport 5.6 1.5 24 Ministry of Social Affairs 5.4 1.4 2.0 King Abdullah City for Atomic and Renewable Energy 5.2 1.4 1.9 Ministry of Commerce and Industry 43 1.1 1.6 Ministry of Municipality and Rural Affairs 4.2 1.1 gas) Ministry of Finance 3.4 0.9 1.3 Ministry of Culture and Information 3.3 0.9 1.2 Ministry of Economy and Planning 3.3 0.9 1.2 Ministry of Justice 3.2 0.9 1.2 Ministry of Petroleum and Mineral Resources 27 0.7 1.0 Saudi Arabian General Investment Authority itil 0.3 0.4 Others 2.3 0.6 0.9 Total 268.4 71.6 100.0 Source: National Transformation Plan 18 GEMs Paper #26 | 30 June 2016 38 Merrill Lynch HOUSE_OVERSIGHT_016128