Saudi Arabia Revises Budget Estimates for 2023 and Pre-Budget Statement for 2024
Saudi Arabia has adjusted its growth projections and is now anticipating a budget deficit for this year, instead of the earlier expected surplus, as indicated in a preliminary budget statement released by the Ministry of Finance. The largest economy in the Arab world expects the real gross domestic product (GDP) to expand by a modest 0.03 percent in 2023, a significant deviation from the previous forecast of 3.1 percent growth.
The report also reveals a revised expectation of a SAR 82 billion deficit for the year 2023, which contrasts with the previously projected SAR 16 billion surplus. Furthermore, for the fiscal year 2024, the Saudi government anticipates total revenues of SAR 1.172 trillion ($312.51 billion) and total expenditures of SAR 1.251 trillion. This is a departure from earlier predictions, which estimated revenue at SAR 1.130 trillion and expenditures at SAR 1.114 trillion for the same period.
The adjustment in these figures reflects Saudi Arabia’s efforts to adapt to evolving economic conditions, particularly in the global oil market. The country has notably decreased its oil production, explaining that this move is aimed at stabilizing the global oil market, which has been grappling with lower prices compared to the previous year’s average of $100 per barrel.
In terms of budget projections, the document foresees a budget deficit of 1.9 percent of GDP for 2024, followed by 1.6 percent of GDP in 2025 and 2.3 percent of GDP in 2026. These deficits are attributed to the government’s expansionary spending policies and conservative revenue estimates, which together result in “limited budget deficits” over the medium term.
On a more positive note, the report forecasts real GDP growth rates of 4.4 percent in 2024, 5.7 percent in 2025, and 5.1 percent in 2026. Saudi Arabia’s economy had experienced a substantial 8.7 percent growth in the previous year, driven by elevated oil prices, ultimately allowing it to achieve its first budget surplus in almost a decade.
Alrajhi Capital, a prominent financial entity, weighed in on these revised economic projections. The organization highlighted that the government’s increased spending is not solely driven by higher revenues but is also supported by increased debt levels. Their analysis for 2023 suggests that oil revenues could reach SAR 749 billion, with the rise attributed to Aramco’s recent hike in PLD (Petroleum, Chemicals, and Petrochemicals Investment Area) prices. Moreover, expectations for non-oil revenues have been revised upward to SAR 440 billion, compared to the earlier estimate of SAR 421 billion.
Alrajhi Capital emphasized that the acceleration of government spending, rising from SAR 1,114 billion to SAR 1,262 billion, is a strategic move that reflects the government’s commitment to achieving its Vision 2030 objectives. They believe that government spending will play a pivotal role in realizing these objectives.
In conclusion, Alrajhi Capital expressed confidence that the Saudi government will maintain healthy reserve levels, estimated at SAR 410 million as of 2Q2023. This will be achieved through increased non-oil revenues and higher leverage, supporting government spending and aligning with its strategic vision for economic growth and development.
Saudi Arabia’s ability to adapt its fiscal policies to evolving economic conditions demonstrates its commitment to achieving sustainable growth and development in line with its Vision 2030 goals.
