SAUDI BUDGET DEFICIT NARROWS ON OIL REVENUE

Income from crude jumped 28% in Q2, while non-oil contribution dropped

Saudi Arabia’s second-quarter budget gap narrowed to 46.5 billion Saudi riyals (Dh45.56bn) from the same period last year after income from oil advanced, while non-oil revenue fell.

Total revenue climbed 6 per cent in the second quarter to 163.9bn riyals after income from crude jumped 28 per cent, the finance ministry said. That helped to narrow the deficit from 58.4bn riyals in the same period last year, even though revenue from nonoil sources fell by 17 pe rcent. Spending dropped 1.3 per cent, to 210.4bn riyals.

“It’s really a story of stronger oil revenue and ongoing fiscal restraint,” said Monica Malik, the chief economist at Abu Dhabi Commercial Bank. “Much of the narrowing in the deficit seen in the first half of 2017 is due to higher oil revenue, versus in 2016.”

Saudi Arabia is reporting quarterly budget figures for the first time this year in an effort to increase government transparency, part of crown prince Mohammed bin Salman’s Vision 2030 plan for life after oil. He has promised to overhaul the Saudi economy by cutting energy subsidies, privatising state entities and selling shares in state juggernaut Aramco. Raising non-oil revenue through taxes and fees is central to that plan.

The government said in December that it planned to spend a total of 890bn riyals this year, with an expected endof-year deficit of 198bn riyals. The budget deficit for the first quarter was 26.2bn riyals.

“Today’s quarterly update presents clear evidence of progress toward achieving fiscal balance by 2020,” said the minister of finance Mohammed Al Jadaan. “Whilst economic challenges remain, we are confident in achieving our fiscal deficit projections for 2017.”

Despite the government’s efforts to decrease its reliance on oil, its share of overall revenue rose to 62 per cent in the Q2, compared with 51 per cent in the same period last year, reflecting the rise in oil prices.

Non-oil income fell in the same period largely because of a decline in “other revenues”, which include returns on investments by the central bank and the Public Investment Fund. Revenue collected from customs taxes and and other taxes, including the zakat religious levy, also declined.

Compensation for employees rose to 103bn riyals in the second quarter from 94bn riyals in the first quarter. However it is unclear whether the data included the April restoration of benefits and allowances for government employees that had been cut.

As part of its reforms, Saudi Arabia is due to introduce value added tax in early 2018. As part of a GCC-wide plan.

Today’s quarterly update presents clear evidence of progress toward achieving fiscal balance by 2020