Increased fiscal pain forecast for Saudi Arabia

jadwaSaudi Arabia’s oil revenues dropped by 24 per cent in Q1 2020 compared to the corresponding period of 2019, according to Jadwa Investment’s report on the Kingdom’s Q1 2020 Budget Statement

Government revenue totalled SR192 billion in Q1 2020, down 22 per cent, or SR53 billion, year-on-year, with declines seen in both oil and non-oil revenue.

Government oil revenue totalled SR129 billion in Q1 2020 compared to SR169 billion in Q1 last year, with oil prices declining 20 per cent over the same period. “Looking ahead, with Brent oil prices down more than 75 per cent year-on-year in April 2020, and likely to remain subdued during the rest of the quarter due tothe possibility of a build in oil investory,  government oil revenue will continue to show sizable yearly declines,” Jadwa comments.

Meanwhile, non-oil revenue declined by 17 per cent in Q1, or SR13 billion, compared with the same period last year. “We expect a drastic decline in non-oil revenue recorded across all segments in Q2, reflecting the downturn in economic activity as a result of the preventative measures related to COVID-19,” says Jadwa.

In 2020 as a whole, Jadwa expects non-oil revenue to decline by 16 per cent over budgeted levels, primarily as a result of lower tax revenue, such as VAT, customs tax and institutional taxes.

The roll-out of fiscal measures to support the private sector (such as payment of dues and 60 per cent of salaries for the nationals for up to three months) plus a sizable rise in healthcare spending, which includes an additional SR47 billion allocation, will likely result in significant expenditure rises in Q2.

The fiscal deficit is expected to widen significantly in the next three quarters. Jadwa forecasts the full year fiscal deficit at SR422 billion (15.7 per cent of GDP) for 2020.

Public debt currently totals SR755 billion, with SR77 billion debt issued year-to-date. “Overall, we expect a further SR99 billion in debt issuance during the remainder of the year (plus SR44 billion in refinancing), thereby pushing total debt to SR854 billion (31.7 per cent of GDP) by end of 2020,” says Jadwa.

 

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