Saudi Arabia studies first price range surplus in virtually 10 years

The Kingdom Tower (centre) stands in the skyline above the King Fahd Highway in Riyadh, Saudi Arabia.

Simon Dawson | Bloomberg | Getty Images

Saudi Arabia reported its first budget surplus in almost 10 years thanks to rising oil prices.

The surplus in 2022 was 102 billion rials ($27 billion), accounting for 2.6% of Saudi gross domestic product, according to the kingdom’s finance ministry, which released preliminary estimates.

The total revenue for that year was estimated at 1.234 trillion riyals while the expenditure amounted to 1.132 trillion riyals.

The government of the hydrocarbon-rich country has approved a budget of 1.114 trillion riyals for 2023 and still expects a surplus of 16 billion riyals. That’s a significant reduction from this year’s surplus, which amounts to just 0.4% of GDP, but is a surplus nonetheless and is based on an oil price well below what many analysts are expecting for next year.

“Our analysis suggests that the budget is based on an oil price forecast of around $75 (per barrel), well below our house forecast of $105 (per barrel) for next year,” said Daniel Richards, MENA economist at the Dubai-based bank Emirates NBD, wrote in a research note.

Economists estimate that Saudi Arabia needs an oil price of between $75 and $80 a barrel to balance its budget.

International benchmark Brent crude futures were up 0.2% to $77.45 a barrel on Thursday afternoon in London, while US West Texas Intermediate futures were up 1.4% to $73.09.

However, the country’s growth is expected to fall significantly compared to this year, slowing to 3.1% in 2023 from 8.5% this year, the Finance Ministry said.

Crude oil storage tanks at the Juaymah tank farm at Saudi Aramco’s Ras Tanura oil refinery and oil terminal in Saudi Arabia in 2018.

Simon Dawson | Bloomberg | Getty Images

Many banks in the Middle East are receiving neutral forecasts from rating agencies, rating agency Fitch reported, which they say reflect “solid economic conditions”. However, Saudi Arabia is characterized by a positive outlook for most of its banks’ issuer default ratings, “driven by improvements in its balance sheet amid higher oil revenues and fiscal consolidation,” Fitch wrote in a report this week.

Still, Goldman Sachs analysts believe spending will go over budget next year as Saudi Arabia’s government pursues expensive mega-projects like futuristic city NEOM, Vision 2030 investments and more. Saudi Crown Prince Mohammed bin Salman launched Vision 2030 in 2016 with the aim of fundamentally transforming and modernizing Saudi Arabia and reducing its economic dependence on oil revenues.

Goldman is also forecasting a lower oil price for next year than Emirates NBD analysts.

“Our own projections, based on an average oil price of $90/barrel in 2023, result in revenues of SAR1,187 billion, slightly below the estimated result for 2022,” Goldman Sachs said in a report Thursday.

“At our spending forecast of SAR 1,213 billion (9% over budget), the result would be a deficit of 0.7% of GDP.”

Visitors watch a 3D presentation during an exhibition on ‘Neom’, a new business and industrial city, in Riyadh, Saudi Arabia, October 25, 2017.

Faisal Al-Nasser | Reuters

2022 saw an overspending, with current spending exceeding budget by 14%, Goldman’s report said, citing data from the government’s budget statement. Capital spending, meanwhile, came in 64% ahead of budget and government spending grew 9% year over year.

“The overspending was primarily related to spending on military and security and healthcare,” Goldman analysts wrote.

Geopolitical events, most notably Russia’s war in Ukraine and subsequent sanctions on Russian oil from Western countries, have squeezed oil supplies and pushed energy prices up sharply.

“Much of the fiscal position and growth history is of course directly related to high energy prices and indirectly to the factors and geopolitical events that are driving prices,” Robert Mogielnicki, senior resident scholar at the Arab Gulf States Institute in Washington, told AFP.

“Nonetheless,” he added, “Saudi Arabia deserves credit for its fiscal consolidation and economic reforms, which have also helped the overall economic picture.”

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