Saudi Arabia sees 2022 budget surplus, first in eight years

Saudi Arabia’s main budget forecast released on Sunday sees a surplus of SAR90bn ($24bn), the first in eight years.

It is the kingdom’s first budget surplus since 2013, as higher oil prices and production boost its finances.

This year’s budget deficit of SAR85bn ($22.7bn), or 2.7 per cent of gross domestic product, was the smallest since 2014, according to a Finance Ministry statement.

Next year, government spending is expected to fall to SAR955bn, while revenue is estimated to rise to SAR1.05 trillion, leaving a surplus of SAR90bn.

Officials expect the economy to expand 2.9 per cent this year and grow by a further 7.4 per cent in 2022, according to the statement.

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 underlined 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.

That could spell trouble next year, as the emergence of the omicron variant of the coronavirus puts economic recoveries around the world 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.

Four revenue scenarios

Saudi Arabia’s budget statement includes three different scenarios alongside its main projections for 2022, as the world’s largest oil exporter plots different revenue possibilities.

The scenarios suggest the G20 economy, which in the past raised expenditure in times of surging crude prices, could be increasingly moving away from that model. Spending stays the same – SAR955bn ($255bn) – in all four scenarios, regardless of income fluctuations.

It considers three other possibilities at a time when global uncertainty surrounding Covid-19 has made economic predictions worldwide more challenging and led to volatility in the oil market.

The kingdom and its Gulf neighbours, which get most of their income from oil, generally spend more during past oil booms. In recent years, they’ve become more restrained. Saudi officials plan to cut spending for the next two years before increasing it slightly in 2024.

Three of the four scenarios in the Saudi budget statement predict the kingdom will have a fiscal balance surplus next year. There’s a “structural scenario” which doesn’t take into account fluctuations in global markets and scenarios with lower and higher revenues than the main budget prediction.