The Kingdom Tower (center) rises above the King Fahd Highway in Riyadh, Saudi Arabia.
Simon Dawson | Bloomberg | Bloomberg | Getty Images
Saudi Arabia reported its first budget surplus in almost a decade, thanks to higher revenues from rising oil prices.
The 2022 surplus will reach 102 billion riyals ($27 billion), accounting for 2.6% of Saudi Arabia’s gross domestic product, the Kingdom’s finance ministry said in preliminary estimates.
This year’s total revenue was estimated at 1,023.4 billion rials and expenditure was 1,132 billion rials.
The hydrocarbon-rich country’s government has approved a budget of 1,114 billion rials in 2023, and expects a surplus of 16 billion rials. That’s a significant drop from this year’s surplus, representing just 0.4% of GDP, but it’s still a surplus and is based on much lower oil prices than many analysts expect next year.
“Our analysis suggests that the budget is based on oil price projections of around US$75 per barrel,” said Daniel Richards, MENA economist at Dubai-based bank Emirates. , well below our forecast of US$105 per barrel next year.” NBD wrote in a research notebook.
Economists estimate that Saudi Arabia will need oil prices between $75 and $80 a barrel to balance the budget.
International benchmark Brent crude futures rose 0.2% to $77.45 a barrel on Thursday afternoon in London. Meanwhile, US West Texas Intermediate futures rose 1.4% to $73.09.
The country’s growth is projected to slow significantly compared to this year, but will slow to 3.1% in 2023 from 8.5% this year, the Treasury said.
Crude oil storage tanks at Juaymah Tank Farm, Saudi Aramco’s Ras Tanura oil refinery and oil terminal, Saudi Arabia, 2018.
Simon Dawson | Bloomberg | Bloomberg | Getty Images
Many Middle East banks have received neutral outlooks from rating agencies, rating agency Fitch reports, saying it reflects “strong economic conditions”. It stands out for having a positive outlook on most bank issuer default ratings,” Fitch wrote in a report this week.
Still, Goldman Sachs analysts believe spending next year will exceed budget as the Saudi government pursues expensive megaprojects such as NEOM’s Future City, Vision 2030 investment. – Crown Prince bin Salman launched Vision 2030 in 2016 with the aim of dramatically transforming and modernizing Saudi Arabia and reducing its economic dependence on oil revenues.
Goldman also predicts oil prices will be lower next year than analysts at Emirates NBD.
A Goldman Sachs report on Thursday said, “Our own projections based on an average oil price of $90 a barrel in 2023 lead to revenues of R1,187 billion, eclipsing the estimated 2022 results. It’s slightly lower,” he said.
“Our spending projection of R1,213 billion (9% above budget) would result in a deficit of 0.7% of GDP.”
Visitors watch a 3D presentation at the exhibition on the new business and industrial city “Neom” in Riyadh, Saudi Arabia, October 25, 2017.
Faisal Al Nasser | Reuters
Goldman’s report, citing data from the government’s budget statement, writes that spending overruns will occur in 2022, with current spending 14% above budget. Meanwhile, capital spending is 64% above budget and government spending is up 9% year-on-year.
“The spending overshoot was primarily related to spending on military, security and health care,” Goldman analysts said.
Geopolitical events, primarily Russia’s war in Ukraine and subsequent sanctions against Russian oil from Western countries, put pressure on oil supplies and caused energy prices to rise sharply.
“Many of the fiscal and economic growth stories are, of course, directly related to rising energy prices, and indirectly to factors driving prices and geopolitical events,” said Washington’s Arab Gulf Coast. said Robert Mogielnicki, a senior fellow at the Institute of Nations. AFP.
“Nevertheless, Saudi Arabia’s fiscal consolidation and economic reforms are commendable, which also contributes to the overall economic situation.”
