The world’s largest oil exporter is facing a huge deficit caused by lower oil revenues and the ongoing coronavirus crisis.
Saudi Arabia announced on Tuesday a budget of 990 billion riyals ($ 263.91 billion) for 2021, about 7% less than its estimated spending for this year, as the world’s largest oil exporter seeks to tame a huge deficit caused by lower oil revenues and the coronavirus crisis.
The kingdom expects to post a deficit of 298 billion riyals ($ 79 billion) this year, or 12% of gross domestic product (GDP), as crude oil revenues are expected to decline by more than 30% and 141 billion riyals. ($ 38 billion) or 4.9 percent of GDP next year, according to a budget statement. It plans to almost balance the budget by 2023.
The finance ministry said the budget reflects “the ability to adopt adequate policies to balance growth, economic stability and fiscal sustainability in the medium and long term”.
Saudi Arabia expects the economy to shrink 3.7% this year, but return to 3.2% growth next year.
Saudi Finance Minister Mohammed al-Jadaan said at a press conference that most economic sectors have begun to recover from the effects of the pandemic in the second half of this year.
“I think the economic recovery of economic activities in the third and fourth quarters bodes well for economic growth in the coming years,” he said.
Brent crude prices have rebounded since falling to a more than 20-year low in April, but at around $ 50 a barrel, they are significantly below the $ 67.9 a barrel Saudi Arabia would need to balance his budget next year, according to the International. Monetary Fund.
Monica Malik, chief economist at Abu Dhabi Commercial Bank, said the deficit target for next year seemed ambitious, “but this year we have seen vital budget support through a strong Aramco dividend and investment returns, and these are likely key factors in 2021. “
Saudi Arabia expects government debt to increase to 937 billion riyals ($ 249 billion) next year from 854 billion riyals ($ 228 billion) this year.
The government’s reserves at the Saudi central bank are expected to drop to 280 billion riyals ($ 75 billion) next year from this year’s estimated 346 billion ($ 92 billion), the finance ministry said.
Oil prices and Aramco dividends
Saudi Arabia tripled a value-added tax in July to 15% to boost state coffers and offset the drop in oil revenues.
The world’s largest oil exporter cut oil production this year as part of a deal with OPEC and other producers to stabilize the oil market, which hit a 21-year low of below $ 16 at barrel in April.
“Given the uncertainty surrounding the pace of global economic recovery and the potential persistence of the crisis, predicting the state of the oil market becomes increasingly difficult,” the finance ministry said in its budget statement.
Revenues this year are estimated at 770 billion riyals ($ 205 billion) and 849 billion riyals ($ 226 billion) next year, the balance sheet says.
For 2020, Saudi Arabia estimated oil revenues at 412 billion riyals ($ 110 billion) after budgeting 513 billion riyals ($ 137 billion) and estimated non-oil revenues at 358 billion riyals ($ 95 billion) after. having budgeted 320 billion riyals ($ 85 billion).
Saudi Arabia does not disclose the oil price hypothesis on which its budget is based, but Rory Fyfe, chief executive of MENA Advisors, said it was likely based on a Saudi export price of around $ 48 per barrel.
“This is more or less in line with market expectations,” he said.
Mazen al-Sudairi, head of research at Al Rajhi Capital, said it was difficult to predict oil revenues for the government “because it includes the additional variable of what dividends Aramco will pay to the government.”
State-owned Saudi oil giant Aramco said it will pay a combined dividend of $ 75 billion this year, most of which will go to the government.