Saudi Arabia is aiming for a budget surplus for the first time in eight years, deriving the optimism from increased oil prices and the gradual opening of global markets from the freeze created by the Covid-19 pandemic.
The kingdom targets a surplus of 90 billion riyals ($24 billion) in the fiscal year 2022. Considering the global economic difficulties that have spread to all countries in the area, many financial research firms claim that this budget is the highest in Saudi’s history.
Three major aspects
The Saudi government rests its expectations for a better financial situation in the coming years on three measures.
The first is the reduction of expenditures, with estimates of 955 billion riyals ($254.6 billion) for the fiscal year 2022 and 951 billion riyals ($253.6 billion) for the fiscal year 2024.
This demonstrates the government’s intention to better expenditure efficiency while also empowering the private sector to drive investment possibilities and supporting the initiatives of the sovereign wealth fund, the Public Investment Fund.
The second measure relates to the Saudi government’s continuous efforts to increase spending efficiency and save money by empowering government agencies to adopt best practices and support training, processes and incentives.
The third is to support restructuring, with efforts underway to build a support and social benefits system that incorporates basic orientations and strategic goals.
What do research firms expect?
According to a recent report by Jadwa Investment Company, economic growth in Saudi Arabia will increase to 7 percent in 2022, owing to a considerable increase in the oil sector’s growth.Â
However, according to the research, the non-oil sector is expected to develop at a significant rate, with the current rate of value-added tax unlikely to change.
Al-Rajhi Capital, on the other hand, predicted that the Saudi budget will be in surplus in 2022, with a surplus of 25 to 45 billion riyals ($6.6-12 billion), compared to the government forecast of a deficit of 52 billion riyals ($13.8 billion), ruling out any changes to the value-added tax.
Moody’s Investors Services improved its outlook on the Saudi economy from negative to stable while maintaining its A1 credit rating, confirming its ability to repay many of the debts accumulated over the previous year.
At the same time, Fitch believes that Saudi Arabia’s considerable financial reserves provide it with a decent bargain of flexibility to meet public financing needs in the case of oil revenue instability.Â
Fitch stated that the figures in the preliminary announcement of the general budget for 2022 reflect the viability of the Saudi government’s financial policies and structural reforms in light of Vision 2030.
According to Beltone Financial Holding’s research section, Saudi Arabia is predicted to experience the most substantial economic growth in nine years, at 4.9 percent in 2022, thanks to increased oil output and strong non-oil sector progress.Â
The report also predicted that oil output would average 10.2 million barrels in 2022, resulting in a 7.8 percent yearly increase in oil GDP.
Saudi government-owned funds invest in development projects in the kingdom, with the transportation, logistics, and digital infrastructure sectors at the top of their objectives. As a result, investment spending is expected to expand by 7.4 percent to 628.6 billion riyals ($167.6 billion) in 2022.
It’s worth noting that this year, the Saudi government introduced “Saudization” rules, which is aimed at increasing the number of Saudi nationals in the private sector, in a variety of industries such as finance, insurance, real estate, cinema, shopping malls, and cafes.Â
On the other hand, Beltone expects that inflation in Saudi Arabia would remain around 2 percent on average, affected by global inflationary pressures, especially in the first half of 2022.