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COMMERCIAL NEWS

Saudi Arabia sees 2.7pc budget deficit for 2021 as oil revenue hit

Sep 30, 2021 6:00 PM

Saudi Arabia has revised down the expectation for its budget deficit in 2021 to SR85 billion ( 22.6 billion) from an earlier forecast of SR141 billion; a deficit of 2.7% of gross domestic product this...

Saudi Arabia has revised down the expectation for its budget deficit in 2021 to SR85 billion ($22.6 billion) from an earlier forecast of SR141 billion; a deficit of 2.7% of gross domestic product this year, according to the ministry of finance in a preliminary budget statement for 2022.
 
It aims to reduce it further next year, to 1.6% of GDP, said the statement.
 
State spending this year is estimated at a little over SR1 trillion, compared to SR990 billion in the previous estimate, the ministry said.
 
Total revenues this year are expected to reach SR930 billion, up from the earlier forecast of SR849 billion, it added.
 
In its review, Al Rajhi Capital, a leading financial services provider in Saudi Arabia, said the split between oil and non-oil revenues is not disclosed but it believes that oil revenues could reach SR545 billion in 2021 (on an upgraded estimate of SR525 billion in July 2021 from SR450 billion at the start of the year), thus taking total revenues to SR925 billion in 2021. 
 
"Our estimate for non-oil revenue of SR380 billion (unchanged) is driven by 15% VAT (SR88 billion contribution in 2021), higher private sector growth, and PIF/SAMA investment returns. With oil price increasing, Govt’s total revenue estimate for 2021 is revised upwards to SR930 billion (likely based on 75$ Brent for Q4) while expected expenditure for 2021 is at SR1015 billion," it stated. 
 
While the government spending has been revised up, investment route through PIF/other private expenditures are intact at SR150 billion till 2025 and continues to be one of the key drivers for the economy. 
 
According to Al Rajhi, the government’s initial fiscal deficit estimate of SR141 billion in 2021 was based on SR849 billion revenues and SR990 billion expenditure. "Also this initial revenue budget was likely based on a Brent price of $50/barrel, in our view," it noted.  
 
With regard to debt, the top Saudi financial group said it expects debt to increase to SR989 billion by 2021 from SR854 billion in 2020. 
 
"Despite this, Debt/GDP stands only at 30% and remains reasonable compared to advanced economies (125.5%; source: IMF) and the emerging & middle income countries’ debt levels (63.7%) especially post a surge witnessed after Corona related stimulus," it said. 
 
"We estimate Brent for fiscal breakeven at US$70/b. GDP is expected to increase by 2.6% in 2021 with non-oil GDP growth at 4.2%. We believe SAMA reserves will not decline, which will give higher ability to spend in the future" Al Rajhi stated in the review.
 
Continued discipline from OPEC+ members, higher gas prices, and underinvestment (oil exploration capex) continue to remain positive for oil. The current consensus for Brent (Bloomberg) is at $72/b and $73/b for 2021 and 2022 respectively. We expect the market to revise oil prices upward from these consensus levels, it added.
 

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