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Saudi Arabia is set to increase public spending next year and expects to post a budget surplus.
The Arab world’s largest economy estimated public revenue next year at 1.12 trillion Saudi riyals ($298 billion), higher than a previous estimate of 968 billion riyals, and an 18 per cent increase in spending at 1.11tn riyals, the Ministry of Finance said in its 2023 preliminary budget statement on Friday.
The estimated surplus of 9bn ($2.4bn) riyals next year, smaller than an earlier estimate of 27bn riyals, represents about 0.2 per cent of the total gross domestic product (GDP).
The government maintained its prediction for a 90bn riyal fiscal surplus this year, the ministry said.
The economy is forecast to grow by 8 per cent in 2022 and 3.1 per cent next year, it added.
“In view of the changes in the growth outlook and geopolitical challenges facing the global economy, the fiscal performance demonstrates tangible improvement in the ability of the kingdom’s economy to face economic challenges and shocks,” the Ministry of Finance said.
“The proactive structural and fiscal reforms that were implemented under the umbrella of the kingdom’s Vision 2030 are key in enabling to achieve high economic growth rates during the current year.”
Saudi Arabia, the world’s top oil exporter, has recorded strong economic growth this year on higher oil prices after its recovery from the impact of the coronavirus-induced slowdown in 2021.
The kingdom's economy grew by 12.2 per cent in the second quarter, registering the fastest expansion in more than a decade, due to higher oil prices, the General Authority for Statistics, better known as Gastat, said last month.
Quarter on quarter, the kingdom’s GDP expanded 2.2 per cent, according to the latest Gastat data.
The kingdom's economy is set to grow at the quickest pace in a decade and could be one of the world’s fastest-growing economies this year, the International Monetary Fund said in August.
It is expected to expand 7.6 per cent this year after growing by 3.2 per cent in 2021, the IMF said in its World Economic Outlook update in July.
The World Bank estimates that the country’s economy will grow 7 per cent this year, while Jadwa Investment expects it to expand 7.7 per cent in 2022.
Oil prices rose sharply this year after the Russia-Ukraine conflict began in February amid growing concerns of supply constraints. However, prices have dropped on fears that a potential recession will slow demand worldwide.
Business conditions in the kingdom’s non-oil private sector have also continued to improve on the back of new business growth, latest data showed.
Saudi Arabia’s seasonally adjusted S&P Global purchasing managers’ index climbed to 57.7 in August, from 56.3 in July, the highest level since October 2021, as new business growth hit a 10-month high.
Saudi Arabia is budgeting for Brent oil at around $76 a barrel next year, according to Al Rajhi Capital, a local investment bank.
“For 2023, we believe oil revenues could reach 754bn riyals and non-oil revenue at 417bn riyals,” said Mazen Al Sudairi, head of research at Al Rajhi Capital.
“Based on our assessment, the government’s 2023 budgeted revenues are likely based on an assumption of Brent at around $76 a barrel.”
The Finance Ministry said it was “basing the estimates of oil and non-oil revenues in the budget on conservative standards in anticipation of any developments that may occur in the domestic and global economy”.
Meanwhile, inflation in Saudi Arabia is expected to be 2.6 per cent and 2.1 per cent in 2022 and 2023, respectively.
“The private sector continues to lead economic growth and its contribution to increasing job creation in the labour market,” the ministry said.
“The government’s continuous efforts to diversify the economy will contribute to enhancing non-oil revenues.”
The government revised the expectations for 2022 expenditure to 1.13tn riyals versus 955bn previously announced, due to which the expected budget surplus is lower than the earlier expectation of 293bn riyals, according to Al Rajhi Capital.
“We view this as a positive sign as higher expenditure will support economic growth.”