Saudi Arabia is raising its revenue forecast for next year as oil prices soar amid a global energy crisis.
Saudi Arabia has raised its revenue expectations for next year and plans to reduce its budget deficit to 1.6% of economic output as rising oil prices and output help the country’s economy. kingdom to bounce back from the pandemic.
Revenues are expected to reach 903 billion riyals in 2022, 4.5 percent more than forecast last year, the finance ministry said in a preliminary budget statement. Despite this, spending next year 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 percent of gross domestic product, well below the ministry’s target of 141 billion riyals.
Better-than-expected results for the world’s largest oil exporter are being propelled by rising energy prices, with Brent crude hitting an almost three-year high above $ 80 a barrel this week. The kingdom derives more than half of 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 increase significantly next year, as the OPEC + cartel eases the cuts that began at the start of the coronavirus pandemic.
The oil market bailout gives officials more leeway after a revenue crisis during the pandemic prompted them to triple value-added tax and cut public sector wages, drawing complaints from citizens. Even the revised upward revenues “reflect a conservative approach to budgeting for oil and non-oil revenues, taken as a precautionary measure against the risk of a resurgence of the pandemic,” the pre-budget document said.
But the statement shows that Saudi Arabia plans to limit spending anyway, with spending this year estimated at just over RI1 trillion, 2.5 percent more than expected. Authorities plan to cut spending over the next two years before increasing it slightly in 2024, the statement said. Projections show the kingdom will reach a small budget surplus of around 1% of GDP in 2023 – long cited by officials as their goal to balance the budget.
Sticking to earlier plans for 2022 and 2023 “indicates a continued focus on fiscal consolidation,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.
Part of this reflects the government’s plans to increase the sovereign fund’s domestic spending 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, starts local businesses and takes stakes in Saudi firms.
These expenditures remain in place “and continue to be a major driver of the economy,” said Mazen Al-Sudairi, head of research at Al Rajhi Capital in Riyadh.
The finance ministry said it expects 7.5% growth in the economy next year – the biggest increase in a decade. It would be a particularly strong rebound after gross domestic product contracted by more than 4% in 2020 and increased by around 2.6% this year.
The finance ministry said new financing needs are projected at 127 billion rials in 2022 and said the kingdom is focusing on issuing fixed-yield debt “in order to mitigate variable return risks.”
The numbers are subject to change in a final budget announcement which usually falls in December.
(Updates with more numbers and context from paragraph 3, quotes from analysts and additional context in paragraphs 6 to 9. An earlier version corrected the numbers to reflect an expected budget surplus in 2023 and 2024)