KSA reduces Q1 deficit, reaping benefits of fiscal measures

Saudi Arabia reduced its budget deficit to SR7.4 billion ($1.97 billion) in the first quarter of the year, the Finance Ministry said on Tuesday, as the government reaps the benefits of consolidation measures introduced last year.

The Kingdom, the Arab world’s largest economy and the world’s top oil exporter, cashed in SR117 billion in oil revenue in the first quarter — 9 percent below the first three months of 2020.

Total revenue however rose 7 percent annually, with a 75 percent increase in income from taxes boosting non-oil revenue by 39 percent year on year. Saudi Arabia last year introduced measures such as a tripling of a value-added tax and removal of a cost of living allowance to replenish state coffers depleted by the coronavirus crisis and lower global demand for crude. These steps helped it to contain a budget deficit which ballooned to over 11 percent of the gross domestic product last year, according to International Monetary Fund estimates.

“The (Q1) data reflects the focus

of the government to lower the fiscal deficit, both by raising VAT which supported non-oil revenue growth in yearly terms, and lowering expenditure,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.

“The higher oil price was also reflected in the quarterly increase in oil revenue,” she said. In the first quarter last year the budget deficit stood at roughly $9 billion.

The Saudi government spent SR212 billion in the first three months of this year, a 6 percent annual reduction partly due to a significant cut in capital expenditure — down by over SR13 billion year on year.

Supported by a rebound in oil prices, Saudi Arabia’s fiscal position looks on track to improve significantly this year. The International Monetary Fund said this week it expects the Kingdom to post a deficit of 4.2 percent of GDP in 2021 — which would be slightly better than Saudi budget forecasts.