LONDON: Saudi Arabia plans to reduce spending next year by about 7.5 percent to SR990 billion ($263.9 billion) as the Kingdom seeks to reduce its deficit. It compares to spending of SR1.07 trillion this year it said in a preliminary budget statement. It anticipates a budget deficit of about 12 percent this year falling to 5.1 percent next year. The Kingdom released data on Wednesday showing that the economy contracted by about 7 percent in the second quarter as regional economies faced the twin blow of the coronavirus pandemic and continued oil price weakness. The unemployment rate among Saudis increased to 15.4 percent in the second-quarter compared to 11.8 percent in the first quarter of the year. The challenging headwinds facing regional economies is expected to spur activity across debt markets as countries sell bonds to help fund spending. Saudi Arabia has already issued about SR84 billion in sukuk year to date. “Over the past three years, the government has developed (from scratch) a well-functioning and increasingly deeper domestic sukuk market that has allowed it to tap into growing domestic and international demand for Shariah-compliant fixed income assets,” Moody’s said in a statement on Wednesday. “This, in turn, has helped diversify its funding sources compared to what was available during the oil price shock of 2015-16 and ease liquidity pressures amid a more than doubling of government financing needs this year.”