Saudi Arabia sees 2023 budget surplus bump

Saudi Arabia boosted its forecast for next year’s budget surplus compared with projections made just three months ago, in a sign of confidence that its revenues will hold up despite jitters in the oil market and fears of a global economic slowdown.

The government’s latest fiscal outlook, unveiled on Wednesday, showed it now expects to run a surplus of SAR16bn ($4.3bn) in 2023, nearly double a previous estimate of SAR9bn.

Revenues are now set to reach SAR1.13tn, slightly more than projected earlier, according to the Finance Ministry. Expenditure next year is expected at SAR1.114tn, unchanged from the government’s estimate published in September.

The world’s top crude exporter is standing by most of its forecasts even as the oil market is close to wiping out its gains for the year. The threat of a recession also looms large because soaring energy costs and interest rates could stymie demand in the coming months.

The kingdom tends to take a relatively conservative view of crude prices in drawing up its budget and doesn’t divulge its assumptions. Al Rajhi Capital estimated in September that Saudi Arabia was budgeting for Brent oil at around $76 a barrel next year, still slightly lower than where the global crude benchmark was trading on Wednesday.

The oil market could look quite different by early 2023, with several potentially historic shifts in supply and demand unfolding in the coming days and weeks.

Officials in Shanghai had just eased some Covid restrictions, joining other Chinese cities as authorities accelerate a shift toward reopening the economy after thousands of demonstrators took to the streets. Top government officials over the past week have signaled a transition away from the harshest containment measures, which have weighed on the economy in the world’s largest oil importer.

The budget is in surplus for the first time in nearly a decade. Buoyed by the rebound from the global pandemic as well as loosening restrictions on investment and social activities, the kingdom is set to be the fastest-growing economy in the Group of 20 this year with an expansion the government now anticipates will reach 8.5 per cent.

The boom has spread beyond the energy sector. Business activity in Saudi Arabia’s non-oil economy expanded at the fastest pace in more than seven years in November, as new order growth accelerated and businesses turned more optimistic.

Tighter reins
The kingdom has meanwhile been taking a more conservative approach to expenditure, with the Finance Ministry resisting expectations that surging energy revenue would lead to a jump in outlays.

In the past, budget surpluses had been redirected to the public sector. But this time, the government largely channeled spending increases to help lower-income families tackle the rising cost of living, along with setting a cap on domestic fuel prices.

The outlook remains strong for the kingdom’s finances since it’s among Gulf Arab economies that the International Monetary Fund (IMF) estimates may save about a third of their oil revenues, a much higher share than previously. The IMF said in October that its projection for the Saudi economy could be revised higher this year on the back of a booming energy sector and strong non-oil growth.

Still, the latest budget projections signal the Saudi government won’t open the taps on spending. Its improved surplus estimate for 2023 is still below what it had expected a year ago.

Crown Prince Mohammed bin Salman wants to reduce his country’s reliance on oil by diversifying and opening up its economy. While foreign direct investment has increased steadily since the transformation plan was announced more than half a decade ago, much of the money is still flooding into fossil fuels.

Last year — when FDI reached $19.3bn, the most since 2010 — the bulk of the inflows came from state oil company Saudi Aramco selling part of its pipeline unit.