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Saudi Arabia is about to slip into a budget deficit in the 2023/2024 financial year despite higher oil prices, the finance ministry has said.
The deficit was estimated at 2% versus an earlier projected surplus of 0.4%, and gross domestic product growth was seen at 0.03%, the ministry also said, as quoted by Reuters.
The deficits will continue, too, because of Riyadh’s expansionary spending plans, the ministry noted. These plans appear to be expansionary enough to offset the effect of higher oil prices resulting from production caps.
Meanwhile, Riyadh is preparing to tap international debt markets in order to “enhance the kingdom’s position in international markets”.
The current price rally in oil will help the kingdom rake more money in, with budget revenues seen at 1.18 trillion riyals, or $310 billion, up from an earlier projection of 1.13 trillion riyals, or $300 billion. Still, the updated revenue figure is substantially lower than last year’s revenues, which came in at 1.268 trillion riyals, equal to about $340 billion.
Spending for the current financial year, meanwhile, has been revised upwards, widening the budget deficit gap.
“The higher spending targets released in the Saudi government budget indicates that domestic growth will remain strong,” Mazen al-Sudairi, head of research at Al Rajhi Capital, told Reuters. “The increase in spending should support the 4% growth in non-oil GDP next year.”
Speaking of non-oil GDP, growth there is seen as stronger than growth in oil GDP, per the finance ministry’s statement. The institution estimated non-oil growth at a respectable 5.9% for the current fiscal year.
“We need to make sure that we have predictable, sustainable expenditure that does not fluctuate with oil prices,” Finance Minister Mohammed al-Jadaan told the FT last year. “Otherwise we will go back to the previous [practices] when you have more revenues you spend more, and when you don’t have revenues you spend less, which is very difficult for the economy.”