Tuesday, 19 October, 2021

KSA’s budget deficit set to narrow to 2.7pc

KSA’s budget deficit set to narrow to 2.7pc

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RIYADH: Saudi Arabia’s budget deficit this year is projected to narrow to 2.7 per cent of the kingdom’s gross domestic product from a previous 4.9 per cent estimate with an additional reduction forecast next year due to higher oil prices and the country’s recovery from the Covid-19 pandemic accelerating, its preliminary 2022 budget statement said.

The improvement in the country’s finances this year was driven by a jump in revenues to an estimated 930 billion ($248bn) Saudi riyals from a budgeted 849bn riyals as oil production increased and crude prices rebounded, report agencies.

The kingdom’s budget deficit next year is expected to further reduce to 1.6 per cent of GDP, the pre-budget statement said. Budget deficits are expected to decrease gradually as surpluses are achieved starting in 2023, it added.

“The effective role of the Public Investment Fund and the development funds, the introduction of the privatisation programme, the creation of further opportunities for the private sector to participate in infrastructure projects and the continued push to develop the management of public finance will contribute to raising the efficiency and effectiveness of spending levels,” Mohammed Al Jadaan, Minister of Finance, said.

Saudi Arabia, Opec’s top oil exporter, is focused on diversifying the economy under its Vision 2030 programme that aims to cut its dependence on hydrocarbons and develop local industries and the kingdom’s manufacturing capabilities.

The PIF is a central plank of Riyadh’s efforts to nurture local industry, develop new non-oil sectors and create more jobs in the kingdom. In January, the PIF unveiled a five-year strategy under which it intends to double its assets to $1.07 trillion and invest a minimum of $40bn a year into the kingdom’s economy until 2025.

The pre-budget document did not provide a breakdown for oil revenues.

“We believe oil revenues could reach 545bn riyals in 2021, taking total revenues to 925bn. Our estimate for non-oil revenue of 380bn is driven by 15 per cent VAT (88bn contribution in 2021), higher private sector growth, and PIF/SAMA investment returns,” according to a report from lender Al Rajhi Bank.

“While government spending has been revised up, investment route through the PIF and other private expenditures are intact at 150bn till 2025 and continues to be one of the key drivers for the economy,” the report added.

The Arab world’s largest economy forecasts economic growth of 2.6 per cent this year and 7.5 per cent in 2022, the pre-budget document said, after a 4.1 per cent contraction in 2020.

“In the first half of 2021, the non-oil GDP recorded a growth of 5.4 per cent supported by the growth in the private sector GDP of 7.5 per cent. Estimates indicate a real GDP growth of 2.6 per cent during 2021, driven by a 4.2 per cent growth in non-oil GDP,” the Ministry of Finance said. Economic growth projections for 2022 are based on expectations of increased oil production starting in May next year as part of an Opec+ agreement and global demand recovery.