Saudi Arabia boosted its revenue forecast for next year, with higher oil prices and production volumes poised to deliver the first surplus since 2013.
Revenue next year is set to reach more than SAR1 trillion ($267 billion), up from SAR903bn in a forecast published in September, according to a Finance Ministry statement. The kingdom expects to record a surplus of SAR90bn next year, putting it 12 months ahead of a plan to balance the budget by 2023.
Helped by soaring oil revenues, spending cuts and higher taxes, the world’s biggest crude exporter is seeking to rebuild its finances, bruised by the impact of the coronavirus pandemic.
“When we have surplus in any year there’s now rules of how we use it, we won’t use it in the budget like used to happen,” Finance Minister Mohammed Al-Jadaan said to reporters on Sunday. Excess government revenue would be “used as a buffer for the future”, and first transferred to the government reserves held by the central bank, and then allocated to the National Development Fund or the Public Investment Fund, two state controlled investment vehicles, he said.
The results are a sharp turnaround from last year, when energy market turmoil and the pandemic combined to crater the kingdom’s nascent economic recovery from the last oil price rout. But they also underscored that, despite years of efforts by Crown Prince Mohammed bin Salman to diversify the economy – including progress in new sectors like entertainment – the fortunes of the world’s largest crude producer still rise and fall with the price of oil.
Still, by setting out a ceiling for spending that’s not tied to oil income the Finance Ministry hopes it can minimise the boom-and-bust cycles that typified its economy in the past when the government would dramatically overspend while crude prices were high, and then cut back severely as they fell.
“We really want to make sure we totally decouple our expenditure from market volatility as that is very important for our economy and the people of Saudi Arabia,” Al Jadaan said. “The last thing you want is to continue this behaviour of your oil revenue increases so you spend more or reduce taxes. What we need now is to build our buffers and make sure they are able to support our plans for vision 2030,” he said, referring to Crown Prince Mohammed Bin Salman’s plan to diversify the economy away from oil.
In an effort to boost revenue to mitigate the impact of last year’s crash the government unexpectedly tripled value added tax to 15 percent, a move that boosted non-oil revenue yet put pressure on some low-income households and businesses. Expectations of a cut in the tax rate had been raised by Prince Mohammed, the kingdom’s ruler, who said in April the hike was a temporary measure that would last up to five years.
Growth rebound
Officials expect a sharp rebound in the Saudi economy, with growth forecast at 2.9 percent this year and 7.4 percent in 2022, according to the statement.
But the emergence of the omicron variant of the coronavirus could spell trouble next year, putting economic recoveries globally in question. After the variant was first identified in late November, oil plunged into a bear market, with benchmark prices dropping around $10 in a single day – though there’s little sign yet of a major impact on demand.
Oil revenues in 2022 are forecast to reach SAR655bn, according to Mazen Al-Sudairi, head of research at Al Rajhi Capital. “The budget breakeven is around $65-a-barrel, while 2022 revenue is likely based on Brent at around $75-a-barrel,” he said.
The International Monetary Fund estimated in October that Saudi Arabia needs an oil price of $72.40-a-barrel to balance its budget next year. Brent crude prices have climbed this year to top $75-a-barrel. Saudi production is also expected to reach an average of 10.7 million barrels-a-day in 2022, according to the International Energy Agency, the highest ever annual average.
The government doesn’t comment on the assumed oil price it uses in the budget, although Al Jadaan said it is “significantly more conservative than what some market participants would calculate”.
Even with an expected surplus next year the government still plans to tap debt markets for about SAR40bn, mostly to refinance debt. It will also issue its first so-called green bond, with proceeds earmarked to fund projects related to the kingdom’s drive to reach net-zero emissions by 2060.
Government debt, which reached 32.5 percent of economic output in 2020 as a result of the pandemic, would start to fall in 2023, according the government forecasts.
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