Saudi Arabia’s budget deficit is expected to narrow over 2018 as a whole, despite the gap widening in first-quarter as compared to last year, London-based Capital Economics (CE) said in a recent report.
The recent rally in oil prices will be the main driver behind the improvement for the whole year, the report said.
“While oil prices were not much higher in Q1 than a year earlier, the recent rally means that the government’s oil revenues will be around 5 percent to 6 percent of GDP higher in 2018 than in 2017,” CE said.
“That, combined with higher non-oil revenues, should more than offset the rise in spending,” it added.
The Kingdom’s budget deficit widened in Q1 year-on-year (YoY) as public sector bonuses more than offset the boost to revenues from the introduction of a new value-added tax (VAT).
According to Saudi Arabia’s latest budget performance report, the budget deficit stood at SAR 34.3 billion (equal to 5.4 percent of quarterly GDP) in Q1 2018.
This compares with SAR 26.2 billion in Q1 2017 and a revised shortfall of SAR 238 billion over 2017 as a whole.
CE said the deterioration in the budget position was largely due to an increase in government spending.
Overall expenditure rose by SAR 30.3 billion, or 18.8 percent YoY, as a result of the public sector bonuses announced in January as well as the introduction of a new household allowance, known as the Citizen’s Account.
Higher spending more than offset a rise in revenues, which rose by SAR 22.2 billion in Q1 2018 compared to a year earlier.
The bulk of the rise was due to a jump in non-oil revenues, as oil revenues were only marginally higher compared to last year.
“Latest figures confirm that the underlying fiscal stance is now being loosened,” CE said.
“Activity data from the first few months of this year have been disappointing. But we expect looser fiscal policy to start to support a pick-up in growth in the non-oil economy over the coming months,” it added.
Comments
{{DisplayName}}
{{ElapsedTime}}