The mid-year budget report released by the Saudi Ministry of Finance on Saturday showed that Saudi Arabia has lowered its economic growth forecast for this year and expects to run a budget deficit this year instead of the fiscal surplus expected at the beginning of the year.
A report released by the Ministry of Finance shows that Saudi Arabia, the largest Arab economy, is expected to have real gross domestic product (GDP) growth of only 0.03% this year, compared with the previous forecast in the fiscal budget report at the beginning of the year of 3.1% growth this year.
The report stated that the government currently expects a deficit of 82 billion rials ($22.14 billion) in 2023, accounting for approximately 2% of GDP that year; instead of the previously expected surplus of 16 billion rials.
In 2024, the Saudi government expects total revenue to be 1.172 trillion riyals ($312.51 billion) and total expenditure to be 1.251 trillion riyals, still maintaining a fiscal deficit. Previous forecasts put Saudi Arabia’s revenue this year at 1.130 trillion riyals and expenditures at 1.114 trillion riyals.
Saudi Arabia expects real GDP to grow by 4.4% in 2024, 5.7% in 2025, and 5.1% in 2026.
The report also predicts that the government’s budget deficit will account for 1.9% of GDP in 2024, 1.6% of GDP in 2025, and 2.3% of GDP in 2026. The report said “limited budget deficits” will continue for some time to come due to expansionary spending policies and conservative revenue estimates.
Driven by high oil prices, Saudi Arabia’s economy grew 8.7% last year and posted its first budget surplus in nearly a decade.
However, since the second half of last year, international oil prices have dropped significantly. In order to protect oil prices, Saudi Arabia began to significantly reduce oil production in the second quarter of this year. On April 2, Saudi Arabia announced that it would cut oil production by an average of 500,000 barrels per day starting in May. On June 4, Saudi Arabia announced after the 35th “OPEC+” ministerial meeting that it would cut an additional 1 million barrels of daily production in July, reducing its average daily production to about 9 million barrels. Since then, Saudi Arabia has extended its 1 million barrel production cut several times, and the latest decision is that the production cut will remain in place until the end of the year.
Increase support policy
Commenting on the revised economic forecast, Alrajhi Capital said, “Increased government spending is not only driven by rising revenue but also by the level of new debt.”
“For 2023, we reiterate that oil revenue is likely to reach SAR 749 billion, mainly due to Saudi Aramco’s recent PLD rise. Nonetheless, we raise our forecast for non-oil revenue to SAR 440 billion (previous estimate of 4,210 billion billion riyals). Driven by the growth of non-oil GDP, non-oil revenue in the first half of 2023 has exceeded the same period in 2022.”
He also noted that Saudi Arabia’s non-oil GDP growth is expected to comfortably remain above 4% in the near future, according to the International Monetary Fund (IMF) country report. We believe this will support increased government spending going forward.
“Accelerating spending can be seen as a strategic move by the government, reflecting the government’s support for the Vision 2030 goals. We believe government spending will play a key role in achieving the Vision 2030 goals,” Alrajhi Capital said.
The agency believes that, in our view, the Saudi government will manage to maintain healthy reserve levels and will maintain spending scale by increasing non-oil revenue and increasing leverage.
(Source of article: Financial Associated Press)
Source of article: Financial Associated Press
Original title: Saudi Arabia lowers its economic growth forecast this year and expects its fiscal year to turn from surplus to deficit.
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2023-10-01 02:24:04
