Bank of America Merrill Lynch research says budgetary outcomes 'to deteriorate going forward'
Saudi Arabia's surprise budget surplus of SR27.8 billion ($7.41 billion) in the first quarter is unlikely to be repeated, according to new research by Bank of America Merrill Lynch.
The results, which marked the first time since 2014 that the Gulf kingdom posted a surplus, reflected an increase in Saudi Aramco special dividends and tight spending control, MENA Economist Jean-Michel Saliba said in a research note.
"We expect the budgetary outcomes to deteriorate going forward, following the surprising Q1 fiscal surplus. However, the likely ramp-up in budget expenditures and, in particular, off-budget capital spending after the completion of the Sabic-Aramco-PIF deal, suggest non-oil activity is likely to pick up going forward," he said.
The research note also said that authorities' ongoing fiscal reforms and possible one-off revenues are keeping non-oil revenues on track.
Non-oil revenues stood at SR76 billion in Q1, down 8.4 percent on a quarterly basis but up 46 percent year-on-year.
It added that the base effects reflect the one-off inclusion in 2018 non-oil revenues of SR50 billion in cash collected in settlements from the government's anti-corruption probe.
Saliba also highlighted that total spending in Q1, which stood at SR218 billion, was unsustainably low and was 40 percent lower than the previous quarter.
Compensation of employees and social benefits remained at elevated levels. Spending control, particularly on the capex side, kept the annualised overall spending pace at just 80 percent of the annual budget target.
"This suggests that spending is likely to increase in coming quarters, particularly given the seasonally low spending figures in the first quarters of the year," noted Saliba.
The research showed that Saudi Aramco's increase in dividend payments in Q1 brought annualised oil revenues on track to exceed the budget target. Oil revenues stood at SR169 billion, up 48 percent compared to Q1 2018, despite lower oil production and prices.
"Some oil revenues to the budget may accrue with a quarter lag. However, to stay in line with the full-year budget oil revenue target, dividend payments would need to remain at this level, or crude oil production and prices may need to increase further," said Saliba.