Saudi Quarterly Budget Deficit Narrows With Oil Income Surge

  • Oil revenue more than doubles; budget deficit 26.2b riyals
  • Minister says plan to balance budget by 2020 remains on track

Saudi Arabia’s first-quarter deficit narrowed on higher oil revenue, boosting the government’s efforts to repair public finances as it implements an economic blueprint for life after oil.

The budget deficit for the three months to March was 26.2 billion riyals ($7 billion), the finance ministry said in a report on Thursday. That compared with 91 billion riyals in the period a year ago, according to Bloomberg calculations using the official data. Quarterly revenue rose 72 percent to 144.1 billion riyals, while expenses fell 2.5 percent to 170 billion riyals, the ministry said.

The government’s target for a balanced budget by 2020 is central to its long-term plan to wean the economy off oil, which includes creating the world’s biggest sovereign wealth fund and privatizing some state assets. While Finance Minister Mohammed al-Jadaan said the report indicates the plan is on course, it also shows that oil still dominates public finances -- its share of total revenue grew in the period -- making the kingdom susceptible to price swings.

“The budget deficit is narrowing very sharply, although it’s largely the effect of a rebound in oil prices,” said Jason Tuvey, Middle East economist for London-based Capital Economics. “There was only a paltry rise in non-oil revenue, so there has been little further progress in reducing the government reliance on oil receipts.”

Quarterly oil revenue more than doubled to 112 billion riyals from 52 billion riyals, or 78 percent of government revenue, compared with 62 percent in the same period last year, the data show. Non-oil revenue was 1.3 percent higher at 32.1 billion riyals, the ministry said.

Transparency

The Saudi government is shifting to quarterly statements on the economy -- having typically reported only annually -- to boost transparency as it implements its economic plan, dubbed Saudi Vision 2030.

In December, the government said it planned to spend 890 billion riyals in 2017, with revenue at 692 billion riyals and a full-year deficit of 198 billion riyals. Non-oil revenue was estimated at 212 billion riyals.

“Overall, we don’t expect this quarterly performance to continue in the second, third and fourth quarters,” al-Jadaan said at a press conference in Riyadh. But the government does expect to have a budget “close” to that announced at the start of the year, he said.

Policy makers cut subsidies on utilities, slowed payments to contractors and tapped debt markets to reduce the deficit as oil export revenue dwindled since 2014. Though prices have rebounded from a 12-year low in January 2016, the budget deficit will probably be 7.6 percent of output this year, according to the median estimate of 11 analysts polled by Bloomberg.

Brent crude averaged nearly $55 a barrel in the first quarter this year, compared with an average of $35 a year ago.

Oil Dominates

“The growth in revenue was from oil,” Mazen al-Sudairi, the Riyadh-based head of research at Al Rajhi Capital, said by phone. “We expect much more investment from the government in the second and third quarter, which should inject more liquidity into the market.”

Mohammed Al Tuwaijri, the vice minister for economy and planning, said in an interview this week authorities will put more focus on reviving economic growth this year, and don’t expect the recent drop in oil prices to affect plans to balance the budget.

“Many non-oil revenues are seasonal,” al-Jadaan said on Thursday, pointing out that dividends from investments by the sovereign wealth fund will come at the end of the year. Other measures including fees for expat workers have yet to be implemented, and will only show up in revenue data in the third and fourth quarter, he said.

The report showed the government’s wage bill dropped 5 percent in the period to 94.1 billion riyals, though it still represented 55 percent of state spending. Officials want to reduce that to 40 percent by 2020.

That policy has been a sensitive issue in Saudi Arabia, where citizens are accustomed to generous state handouts. After scaling back some perks and bonuses in September, the government reinstated them last month after some state employees complained privately and on social media about their reduced incomes.

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