RIYADH: Saudi Arabia said on Sunday it expected to post its first budget surplus in nearly a decade next year, as it plans to restrict public spending despite a surge in oil prices that helped to refill state coffers hammered by the pandemic.
After an expected fiscal deficit of 2.7% of gross domestic product this year, Riyadh estimates it will achieve a surplus of 90 billion riyals ($23.99 billion), or 2.5% of GDP, next year - its first surplus since it went into a deficit after oil prices crashed in 2014, report agencies.
The world’s biggest oil exporter plans to spend 955 billion riyals next year, a nearly 6% expenditure cut year on year, according to a budget document.
Riyadh plans to reduce military spending next year by around 10% from its 2021 estimates, the budget showed, a sign that the cost of the military conflict in neighbouring Yemen has started to ease.
Revenues jumped this year by almost 10% to 930 billion riyals from the budgeted 849 billion, driven by higher crude prices and oil production hikes as global energy demand recovered.
Next year, the kingdom expects revenues of 1.045 trillion riyals.
“We are totally now decoupling the government expenditure from the revenue”, Finance Minister Mohammed al-Jadaan told Reuters.
The largest Arab economy shrank last year as the coronavirus crisis hurt its burgeoning non-oil economic sectors, while record-low oil prices weighed on its finances, widening the 2020 budget deficit to 11.2% of GDP.
But the economy bounced back this year as COVID-19 restrictions were eased globally and domestically.
Saudi Arabia forecast 2.9% GDP growth this year followed by 7.4% growth in 2022, according to the budget.
The kingdom does not disclose the oil price it assumes to calculate its budget.
For 2022, it was likely basing its budget on an oil price assumption that could be as low as $50-$55 per barrel, estimated Monica Malik, chief economist at Abu Dhabi Commercial Bank.
That could leave extra room for further improvement in its fiscal position. Brent crude oil has climbed this year and is expected to average about $70.60 per barrel in 2021 and decline slightly to $70.05 next year, according to the Energy Information Administration.
Saudi Arabia’s ability to maintain fiscal diligence depends partly on the increasing roles of entities like the Public Investment Fund (PIF) or the National Development Fund in backing Prince Mohammed’s ambitious investment plans.