A rebound in oil prices and ramped-up production levels (reaching 11 million bpd) helped Saudi raise its revenue expectations for next year, with plans to narrow its budget deficit to 1.6% of economic output, a Bloomberg report revealed.
Brent crude hit a nearly three-year high above $80 a barrel recently. Saudi gets over half its revenue from oil. Saudi Arabia’s oil production is also set to rise considerably next year, as the OPEC+ cartel eases cuts that started at the onset of the coronavirus pandemic.
Revenue is projected to reach 903 billion riyals ($240.75 bn) in 2022, 4.5% higher than forecasted last year, according to a preliminary budget by the finance ministry. 2022 spending is expected to be the same as planned earlier, at 955 bn riyals ($254.61 bn).
The revised-up revenue “reflects a conservative approach in budgeting oil and non-oil revenue, taken as a precautionary measure against risks of resurgence of the pandemic,” the pre-budget document said. Al Rajhi Capital estimated revenues could reach 545 bn riyals ($145.3 bn) this year.
Meanwhile, this year’s budget deficit is expected to narrow to 85 bn riyals ($22.66 bn), or 2.7% of gross domestic product, lower than the ministry’s initial target of 141 bn riyals ($37.6 bn).
The projections show the kingdom reaching a small fiscal surplus of around 1% of GDP in 2023. The coronavirus crisis and record-low oil prices weighed on Saudi coffers, widening the 2020 budget deficit to 11.2% of GDP.
The government plans to expand domestic spending by the sovereign wealth fund PIF to at least $40 bn per year.
The finance ministry expects the economy to expand 7.5% next year following a contraction of more than 4% in 2020 and 2.6% growth in 2021.
The finance ministry said that new financing needs are projected at 127 bn riyals ($33.86 bn) in 2022, and said the kingdom is focused on issuing debt with fixed yields “in order to mitigate the risks of variable yields.”
The final budget announcement usually fall in December.
The PIF plans to inject 150 bn riyals ($40 bn) into the national economy each year until 2025 to help diversify the economy.
Saudi’s PIF hired a group of banks to help sell part of its 70% stake in Saudi Telecom (STC), the Middle East’s biggest telecoms company, a deal that could raise as much as $12.9 bn.
It hired Goldman Sachs Group Inc., Morgan Stanley, HSBC Holdings Plc and Saudi National Bank’s investment banking arm to “evaluate the potential transaction options,” the fund said in a statement recently.
PIF is aiming to maintain a majority stake of more than 50% in the company.