By Yousef Sabah

RIYADH (Reuters – Saudi Arabia stated on Sunday that it would post its first budget surplus for nearly a decade in the next year. It plans to reduce public spending despite a spike in oil prices, which has helped replenish state coffers that were empty due to the pandemic.

Riyadh anticipates that the fiscal deficit this year will reach 2.7% of gross national product. Riyadh projects a surplus of 90% billion Riyals ($23.99 Billion), which would be 2.5% of GDP next year. It is Riyadh’s first surplus since 2014, when it was in deficit due to oil price crashes.

World’s largest oil exporter will spend nearly 6 percent less next year to 955 billion rupees.

This year, revenues jumped almost 10% to 930 Billion Rials from 849 Billion. The increase in crude oil prices and higher production as the global energy market recovered led to an increase of nearly 10% in revenue.

In the next 12 months, revenues are expected to reach 1.045 trillion rupees.

“We’re now totally decoupling government expenditures from revenue”, Mohammed al-Jadaan (Finance Minister) told Reuters.

We are telling people, as well as the private sector and economy in general that planning can be done with predictability. Budget ceilings will remain stable regardless of what the future holds for oil revenues or prices.

Last year, the largest Arab economy was in deep recession. The coronavirus crises harmed its non-oil sectors and record low oil prices put pressure on its finances. This led to a widening of the 2020 budget deficit, which now stands at 11.2% GDP.

However, the economy recovered this year due to COVID-19’s global and domestic restrictions. The revenues grew sharply from year to year.

The budget document predicts that Saudi Arabia will experience 2.9% GDP growth next year, followed by 7.4% in 2022.

It does not reveal the price of oil it uses to determine its budget. Last year, economists estimated that it would be based on an oil price between $46 and $48, per barrel.

According to Monica Malik of Abu Dhabi Commercial Bank, the budgeting for 2022 was likely to be based on an assumption about oil prices that might drop as low as $50-$55 a barrel.

SURPLUS

There could be more improvement to its fiscal situation: It has risen this year. The Energy Information Administration predicts that it will average $70.6/barrel in 2021. Next year, however, it is likely to drop slightly to $70.05.

Riyadh, according to estimates by the International Monetary Fund would require an oil price of $72.4 a barrel in order for it to balance its next-year’s budget.

Saudi Arabia’s financial diligence is dependent partly on improving spending efficiency. However, it also results from the increased role of entities such the PIF state fund or the National Development Fund to finance Crown Prince Mohammed bin Salman’s ambitious investments plans.

Saudi state media SPA reported that Prince Mohammed said, “The surpluses are used to increase government reserve, to meet coronavirus panademic needs and strengthen the kingdom’s finances and improve its ability to face global shocks, crises, and other challenges.”

He said that PIF intends to make more local investments than 150 billion Rial in the next year. This is after having already invested 84 Billion Rials this year.

($1 = 3.7513 riyals)