Saudi Arabia’s budget deficit narrows in second quarter on oil, taxes
Now Reading
Saudi Arabia’s budget deficit narrows in second quarter on oil, taxes

Saudi Arabia’s budget deficit narrows in second quarter on oil, taxes

Spending on health and social development rose 20 per cent

Saudi Arabia’s budget deficit narrowed to SAR4.6bn ($1.2bn) in the second quarter, boosted by higher oil prices and surge in tax revenue.

The world’s largest crude exporter saw oil revenue rise 38 per cent in the period from April to June compared to the same period last year, while non-oil revenue tripled, reaching SAR116bn, according to a finance ministry statement. That was largely driven by increased tax revenue after the government tripled value-added tax to 15 per cent last July – and the comparison with a low base during last year’s lock-down. Spending remained restrained, at around SAR253bn.

Higher oil prices are giving Saudi Arabia’s public finances a boost after last year’s crisis sent its budget deficit soaring to nearly SAR300bn. Officials aim to slash that figure to SAR141bn in 2021, targeting a deficit of around 5 per cent of gross domestic product.

But so far they’re set to significantly beat that goal, accumulating a deficit of just SAR12bn in the first half of the year as they keep spending under their target – with capital expenditures down 36 per cent in the first half compared to the same period last year.

“We expect the deficit will slide to SAR62bn for the full year,” said Mazen Al-Sudairi, head of research at Al Rajhi Capital, adding that the gap would be “supported by oil revenue that benefited from the market recovery.”

The government also borrowed far more than it needed in the first six months of the year, raising almost $14bn from a mixture of local and international investors, outstripping the $3.2bn deficit. That excess borrowing would be used to fill the financing needs in the second half, the Finance Ministry said.

The surge in non-oil revenue reflects not only higher taxes but also “the sharp recovery in non-oil economic activity, which has already reached pre-pandemic levels,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.

Other figures from the report include:

  • Spending on government employees’ wages fell 1 per cent in the first half compared to the same period last year, after the government removed a “cost of living” allowance for workers last year, citing strained finances
  • Military spending declined 2 per cent in the first half, while spending on municipal services tumbled 25 per cent and spending on infrastructure and transportation fell 19 per cent
  • Spending on health and social development rose 20 per cent as the government devoted more funding to grappling with the pandemic

© 2021 MOTIVATE MEDIA GROUP. ALL RIGHTS RESERVED.

Scroll To Top