Chart 20: Budgeted spending - up or down? SARbn ——— Budgeted Defense & Security spending ome, 9) i 350 % of total budgeted spending (rhs) 45 300 is 250 % a a 30 200 r 25 150 20 E 1G 100 —_— - 10 0 0 - © oe ao = Oo wo &® D> =- ise) lo ~y Oo —- lo aoanmnnoenoe 0 Do Dd Dd BD [oz) oS aS f=) ocmUCcUlOUlUDT EO TCU nono oOo Dd DD DBD DD DD [op) oO oOo oO eo oOo Oo CUOCLUD le ee DO ON I CF NC NC Source: SAMA, Ministry of Finance, Bank of America Merrill Lynch Global Research. Privatization comes back to the government’s agenda The consideration of a privatization program is not surprising at the current juncture, in our view. Recall that the Saudi privatization program was initially started in 1999 with the creation of the now-dissolved Supreme Economic Council, following the drop in oil prices in 1998. Small-scale privatizations took place in the early 2000s, and 2002 saw large privatization in the telecommunication sector and postal services. Selling public sector stakes is one of the non-debt creating financing options for the government that would help minimize the direct drain on Fx reserves, encourage private sector development and improve services delivery. That being said, given the lack of non-oil taxation, this would only contribute to one-off financing flows alongside savings from a drop in budgetary allocations to the privatized entities, in our view. The 2015 budgetary appropriations for public institutions totalled SAR163.7bn (USS$43.7bn; 19.0% of total budgeted spending and 6.8% of GDP). We calculate that the public institutions related to the entities that appear to have been slated for privatization according to press reports account for budgetary appropriations of SAR124.8bn (US$33.3bn; 5.2% of GDP. This is likely to be the upper bound of fiscal savings possible under the privatization program. In our view, this is unlikely to be realized fully as it includes a large number of universities and because most timelines appear to center around 2020. Table 9: P