Saudi budget deficit narrows in Q2, boosted by oil prices, tax revenue

The world’s largest crude exporter saw oil revenue rise 38 percent in the period from April to June compared to the same period last year, while non-oil revenue tripled, reaching SR116 billion, according to a finance ministry statement.

That was largely driven by increased tax revenue after the government tripled value-added tax to 15 percent last July – and the comparison with a low base during last year’s lock-down. Spending remained restrained, at around SR253 billion.

Higher oil prices are giving Saudi Arabia’s public finances a boost after last year’s crisis sent its budget deficit soaring to nearly SR300 billion. Officials aim to slash that figure to SR141 billion in 2021, targeting a deficit of around 5 percent of gross domestic product.

But so far they’re set to significantly beat that goal, accumulating a deficit of just SR12 billion in the first half of the year as they keep spending under their target – with capital expenditures down 36 percent in the first half compared to the same period last year.

“We expect the deficit will slide to SR62 billion 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 $14 billion from a mixture of local and international investors, outstripping the $3.2 billion 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.

According to the report, spending on government employees’ wages fell 1 percent 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 percent while spending on municipal services tumbled 25 percent and spending on infrastructure and transportation fell 19 percent.

Spending on health and social development rose 20 percent as the government devoted more funding to grappling with the pandemic.