OIL PRODUCERS VOW TO KEEP CRUDE SUPPLY IN CHECK

Saudi Arabia’s new budget is aimed at striking a balance between reviving economic growth and reining in deficit. 

In December, the kingdom unveiled a SAR 990 billion budget for 2021, which is 7% lower than spending plans for 2020. 

The Ministry of Finance noted that the kingdom’s budget deficit for 2020 will soar to SAR 298 billion,but will contract to SAR 141 billion in 2021, or 4.9% of GDP, and will dramatically decline to just 0.4% of GDP by 2023, as spending efficiency improves.

“In FY 2021, it is expected that government revenues will be boosted by economic reform and initiatives implemented during the past years, in addition to the initiatives announced during FY 2020 to confront the COVID-19 crisis,” the ministry said in the budget document. “Total revenues are estimated to reach SAR 849 billion, an increase of 10.3% over FY 2020 estimates, and SAR 928 billion in FY 2023.”

At the other side of the ledger, spending will reach SAR 990 billion, or 34.5% of GDP.

“In FY 2021 and the medium-term, the kingdom aims to continue spending on mega projects, VRPs, social benefits and subsidies schemes, and stimulus packages due to their important role in providing more opportunities for the private sector and the development funds to participate in infrastructure projects,” according to the budget document.

Research consultancies have also lauded the government’s efforts to support the economy at a time of global economic upheaval. 

“We view the government’s decision to maintain a similar level of public expenditure as last year, despite the volatility in the oil market, as a testament of its commitment towards achieving fiscal, social, and economic targets,” noted Dr Abdullah Al Fozan, chairman of KPMG Saudi Arabia.

“Indeed, the focus of spending in 2021 remains on building the non-oil economy, which will support higher economic and social returns, as well as employment generation.”

The government will realise the full impact of an increase in value added tax that will help generate nearly SAR 257 billion in revenue in 2021, an increase of almost 31% compared to the same period last year.

Specifically, taxes on goods and services will rise SAR 209 billion in 2021, a 47.7% surge over the previous year. However, the projections do not include the exemptions and deferrals introduced by the government to support private sector during the pandemic.

The higher receipts from goods and services will partially be offset by a 17% decline on incomes, profits and capital gains to SAR 13 billion, primarily due to muted private sector recovery. Taxes on international trade and transaction will rise 4.3% to SAR 17 billion, the budget projects.

However, profits from oil revenues, investments and sales of goods and services will make up the bulk of revenues, accounting for SAR 592 billion this year, an increase of 3.2% compared to the previous year.

The government is also keen to boost spending in certain sectors to revive growth.

As much as SAR 186 billion is earmarked for the education sector, mostly to set up schools, colleges and universities and focus on research.

The heath sector will also remain a critical sector, especially during the pandemic, with allocation of SAR 175 billion in the 2021 budget.

The sector’s mandate is “health development including health and ambulatory care, legislations and research. Social Development including security and protection services, in addition to cultural, media, sport and entertainment services and the Quality of Life Program.”

The resources sector, focused on environmental infrastructure, energy  and mineral source and support from SME and export industry, will secure SAR 72 billion, according to the budget document.

Other big ticket items in the budget include SAR 175 billion on the military and SAR 101 billion on security and regional administration.

Infrastructure and transportation will see SAR 46 billion, focused on roads, ports, railways, airports, housing, communications, information technology, postal services and space and industrial cities such as Jubail, Yanbu, Ras Alkair and Jazan.

The global economy remains in a state of flux and forecasting has proved to be especially difficult given that COVID-19 continues to disrupt economic activity.

But economists and planners are hopeful that the rollout of various vaccines will flatten the virus curve and reopen parts of the economy. 

Finding and delivering an effective coronavirus vaccine in the near future will prompt the recovery of economic activity worldwide and increase consumption rates, domestic demand, and domestic and foreign investments by the private sector in the non-oil sector, the budget document notes.

“This will improve the kingdom’s trade balance with the main partners as a result of easing of the precautionary measures and procedures taken and the improvement of global supply chains, which will positively affect the domestic economy and may lead to better fiscal and economic results than projected in the FY 2021 budget.”