Saudi Arabia, the world's largest exporter of oil, posted a quarterly budget surplus of 27.8 billion riyals ($7.4 billion) in the first quarter of 2019, the kingdom's Finance Minister Mohammed Al-Jadaan announced.
Building on increased income from hydrocarbon exports and riding the wave of higher non-oil revenues spurred by the Kingdom's diversification plans, the biggest economy in the Arab world marked its first budget surplus since the oil price collapse four years ago.
This seems like a considerable economic achievement given that the Kingdom was coping with a deficit of 34.3 billion riyals ($9.14 billion) or 5.9 percent of the total GDP, during the same period last year. The Saudi Arabian economy has bounced back growing 2.2 percent in 2018, Mohammed Al-Jadaan announced, with the non-oil sector contributing to 56.2 percent of the overall GDP.
Oil vs non-oil impact
The year-on-year increase in oil revenue is interesting given the volatility in oil prices and production cuts, which had led to projections of weaker year-on-year oil revenues. Saudi Arabia also announced its plan to increase state spending by 7 percent in 2019 to boost economic growth. In the first quarter alone, expenditures rose to 217.6 billion riyals ($58 billion), the Saudi finance minister said. This increase in state spending, while reflective of the record $295 billion budget, raised concerns of decelerated growth.
While increased spending and projected decrease in growth rates are cause for concern, it does create the right recipe for economic diversification. The growth of non-oil sectors is also interesting as Saudi Arabia drives toward the fulfillment of its Vision 2030 goals, which includes enhancing the non-oil industrial portfolio in the nation. A recent report by global consultancy firm Oxford Business Group detailed a new phase of industrial development in Saudi Arabia, the nation's focus on tourism and entertainment, the increased push for downstream offerings, as well as growth in the volume of domestically produced hardware — all of which speak to the Kingdom's massive diversification push.
A recent Reuters poll of economists lowered growth expectations for Saudi Arabia, projecting a 1.8 percent GDP growth in 2019 compared to projections of 2.1 percent in 2019, from three months ago. The lowered expectations for this indicate an economy bearing the brunt of oil supply cuts and a gradual shift to a non-oil economy. However, this does point to a stronger economic future with GDP growth projected to rise to 2.2 percent in 2020, according to the Reuters poll.
In short, oil and gas are still expected to continue fuelling Saudi Arabia's economy, but the reallocation of revenues into non-oil during the fourth industrial revolution means that the kingdom is maturing into a diverse economy that will not only benefit from its mega-projects, increased infrastructure spending, public-private partnerships but will also attract a large number of local, regional and international investment.