Saudi budget deficit shrinks due to higher oil prices

Saudi Arabia’s state budget deficit shrank by a fifth in the second quarter from a year earlier as revenues rose moderately on the back of higher oil prices.

The deficit dropped to SAR46.5bn ($12.4bn) in the April-June period from about SAR58.4bns a year earlier, data from the finance ministry showed on Sunday. It expanded from SAR26.2bn in the first quarter of this year, however.

Saudi officials said the figures showed the world’s largest oil exporter was making good progress in repairing state finances that have been severely damaged by slumping oil prices in the last three years.

“Today’s update presents clear evidence of progress towards achieving fiscal balance by 2020,” finance minister Mohammed al-Jadaan said in a statement.

“Whilst economic challenges remain, we are confident in achieving our fiscal deficit projections for 2017,” he added. The government has projected a deficit of SAR198bn or roughly 8 percent of gross domestic product this year, down from an actual SAR297bn in 2016.

Revenues increased 6 per cent from a year ago to SAR163.9bn in the second quarter. However, that was because of higher oil prices and Riyadh appeared to make little progress overall in developing non-oil revenues, which are key to its long-term drive to wean itself off dependence on energy exports.

Oil revenues jumped 28 per cent from a year ago to SAR101.0 while non-oil revenues shrank 17 per cent to SAR62.9bn.

Spending dropped 1.3 per cent to SAR210.4bn in the second quarter because of a nearly 40 per cent fall in the government’s “use of goods and services” – a sign that to save money, Riyadh was continuing to hold back on expenditure on infrastructure projects and was cutting operating costs.