Higher oil prices help Saudi Arabia trim its deficit

      Published on Wednesday, 29 August , 2018      44 Views     
Higher oil prices help Saudi Arabia trim its deficit

  • Business

The 2018 Haj season has ended successfully, a reflection of the calm and steady progress put in by the Saudi economy.



This is particularly true of the state budget, which thanks to a revival of oil prices has been a main driver.

It is more than likely that we would see a slide in the budget deficit by year-end on the back of both higher oil and non-oil revenues.

The deficit had totalled $98 billion (Dh360 billion) in the 2015 fiscal year, declined to $79 billion in 2016 and fell further to $61 billion in 2017.

The authorities had prepared the 2018 budget with projected revenues of $209 billion and expenditure of $261 billion, for a projected deficit of $52 billion. Supported by rising oil prices, the latest data point to improved levels for Saudi public finances for fiscal year 2018. Total revenues increased by 67 per cent during the second quarter to $73 billion, split between $49 billion in oil income and $24 billion for non-oil.

VAT boost

In fact, non-oil revenues gained a remarkable 42 per cent during the second quarter, partly due to the introduction of value-added tax (VAT) at the start of the year. Saudi Arabia had earlier introduced an excise tax on tobacco products, energy and frenzy drinks. Other moves included raising prices for petroleum products, electricity and governmental services for locals and expatriates alike, as well as revisiting the subsidy programme.

Turning to spending, total expenditure grew by 34 per cent to $75 billion in the second quarter. Altogether, the first-half of 2018 saw revenues of $118 billion, up 43 per cent year-on-year, while total expenditure was $128 billion, itself higher by 49 per cent over 2017. This translates into a budget deficit of just $11 billion during the first half.

As for an Aramco initial public offering (IPO), which has been called off, there is no urgency for such a move in the current environment of relatively high oil prices. Brent prices have hovered above $70 per barrel. By one account, an average oil price of $85 or $87 per barrel is needed to bring about a balanced budget in the kingdom. A balanced budget is projected by 2023, if not earlier.

The budgetary numbers for the first-half show the state’s determination to increase spending where possible. Public expenditure is vital and indicative of the broader economic directions taken by the kingdom. Saudi Arabia boasts the largest GDP among Arab economies at large, which in turn entices local investors to commit funds for the local economy.

Looking ahead, it is possible to see further positives in the third quarter in light of stronger oil prices and revenues associated with the Haj season.



Clearly, the Saudi economy is overcoming the challenges associated with the plunge in oil prices during 2014.

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Category Business | 2018/08/29 latest update at 7:00 PM
Source : Gulf News | Photocredit : Google
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