News wire — Saudi Arabia has raised its revenue expectations for next year and plans to narrow its budget deficit to 1.6% of economic output as higher oil prices and production help the kingdom’s economy rebound from the pandemic.
Revenue is projected to reach 903 billion riyals in 2022, 4.5% higher than a forecast last year, the finance ministry said in a preliminary budget statement. Despite that, next year’s spending is expected to be the same as planned earlier, at 955 billion riyals. Meanwhile, this year’s budget deficit is expected to narrow to 85 billion riyals, or 2.7% of gross domestic product — significantly lower than the ministry’s target of 141 billion riyals.
The better-than-expected results for the world’s largest oil exporter are propelled by rising energy prices, with Brent crude hitting a nearly three-year high above $80 a barrel this week. The kingdom gets over half its revenue from oil, even as Crown Prince Mohammed bin Salman tries to diversify the kingdom’s economy into new sectors like tourism and manufacturing. Saudi Arabia’s oil production is also set to rise considerably next year, as the OPEC+ cartel eases cuts that started at the onset of the coronavirus pandemic.
The oil market rescue gives officials more breathing room after a revenue crunch during the pandemic pushed them to triple value-added tax and trim public sector pay, drawing complaints from citizens. Even the revised-up revenue “reflects a conservative approach in budgeting oil and non-oil revenue, taken as a precautionary measure against risks of resurgence of the pandemic,” the pre-budget document said.
But the statement shows Saudi Arabia plans to keep spending restrained anyway, with expenditures this year estimated to reach just over 1 trillion riyals, 2.5% higher than planned. Officials plan to cut spending for the next two years before increasing it slightly in 2024, according to the statement. The projections show the kingdom reaching a small fiscal surplus of around 1% of GDP in 2023 — long cited by officials as their target to balance the budget.
Sticking to earlier plans for 2022 and 2023 “indicates an ongoing focus on fiscal consolidation,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.
Some of that reflects the government’s plans to expand domestic spending by the sovereign wealth fund to at least $40 billion per year. The Public Investment Fund is playing an increasingly central role in the kingdom’s economy as it oversees mega-projects, launches local ventures and acquires stakes in Saudi companies.
That spending remains in place “and continues to be one of the key drivers for the economy,” Mazen Al-Sudairi, head of research at Riyadh’s Al Rajhi Capital, said.
The finance ministry said it expects the economy to expand 7.5% next year — the biggest surge in a decade. That would be a particularly strong bounce-back after gross domestic product contracted more than 4% in 2020 and grew an estimated 2.6% this year.
The finance ministry said that new financing needs are projected at 127 billion riyals in 2022 and said the kingdom is focused on issuing debt with fixed yields “in order to mitigate the risks of variable yields.”
The figures are subject to change in a final budget announcement that usually falls in December.
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