Saudi Arabia reports Q3 budget deficit of $9.5bn amid oil production cuts

Oil revenue during the period fell 36 per cent to $39.2 billion as total government revenue declined 14 per cent

Saudi Arabia's total revenue in the third quarter fell 14 per cent to 258.5 billion riyals. Reuters

Saudi Arabia's budget deficit widened in the third quarter by almost seven times on a quarterly basis as oil revenue fell amid production cuts by the Arab world’s largest economy.

The total budget deficit in three months to the end of September reached 35.8 billion Saudi riyals ($9.54 billion), compared with 5.2 billion riyals in the second quarter, the kingdom’s Ministry of Finance said in a budget update on Wednesday.

The kingdom reported a budget deficit of 2.91 billion riyals for the first quarter of the year.

Last month, Saudi Arabia revised its growth forecast for 2023 and expects to record a budget deficit this year as it boosts spending.

The kingdom expects the real gross domestic product to grow by 0.03 per cent this year, “due to a voluntary reduction in oil production”, compared with a previous growth estimate of 3.1 per cent, a preliminary budget statement from the Ministry of Finance showed.

Non-oil growth this year is projected to reach 5.9 per cent, led by the trade, hospitality and tourism sectors, it said at the time.

Saudi Arabia is now forecasting a deficit of 82 billion riyals this year, compared with its previous estimate of a surplus of 16 billion riyals.

Oil revenue in the third quarter fell 36 per cent annually to Dh147 billion riyals, while non-oil revenue jumped 53 per cent year-on-year to 111.5 billion riyals. The total revenue during the quarter fell 14 per cent to 258.5 billion riyals.

The data comes as Saudi Arabia continues to cut oil production to address volatility in the market and support prices.

In September, Saudi Arabia announced that it would extend its voluntary oil cut of one million barrels per day for another three months until the end of December.

The latest reduction is in addition to a cut announced in April, which is in place until the end of December 2024.

Oil prices are also trading lower compared to last year, hitting the overall revenue of Opec’s largest crude producer.

Brent, the benchmark for two thirds of the world’s crude, is currently trading above $85 per barrel after hitting close to $140 a barrel following Russia’s invasion of Ukraine last year.

Brent crude prices averaged 20.1 per cent lower than last year in the first nine months of 2023 and Saudi oil production fell 6.3 per cent year-on-year during the period, Daniel Richards, a senior economist at Emirates NBD, said in a research note.

"We hold to our forecast for a budget deficit equivalent to 1.9 per cent of GDP this year, compared to a surplus of 2.5 per cent last year (which was the first since 2014)," Mr Richards said.

"In 2024 we expect that the budget deficit will narrow to 1.3 per cent of GDP."

For the nine months of 2023, the kingdom recorded a total budget deficit of 44 billion riyals as revenue fell 10 per cent annually to 854.3 billion riyals, with oil revenue declining by 24 per cent to 505.3 billion riyals.

Non-oil revenue during the nine months grew 22 per cent year-on-year to about 349 billion riyals.

Saudi Arabia is boosting its non-oil revenue as part of its diversification strategy and Vision 2030 programme. This includes the development of new tourism projects and industries supporting its non-oil growth.

Saudi Arabia's non-oil economy expanded at a quicker pace in September as a sharp increase in output and the number of new orders drove business activity.

The headline Riyad Bank purchasing managers' index climbed to 57.2 in September, up from 56.6 in August, showcasing a quicker upturn in the health of the kingdom's non-oil private sector.

The total expenditure in the third quarter rose 2 per cent annually to 294.3 billion riyals due to higher spending on grants that reached 797 million riyals, up 337 per cent compared to the same period last year, the Ministry of Finance data shows.

The total spending on subsidies decreased by 51 per cent to 3.7 billion riyals. Spending on social benefits also declined for the quarter.

For the nine months, the total expenditure grew 12 per cent to 898.2 billion riyals on the back of higher spending on grants.