August 09, 2018
Saudi Arabia has reported a sharp improvement in fiscal deficit in the first half (H1) of the year, coming in at SR41.7 billion ($11.1 billion), much lower than 50 per cent of SR195 billion projected for the full year by the government, a report said.
H1 revenues now stand at about SR440 billion (+43 per cent y-o-y), driven by a sharp increase in both oil (+40 per cent y-o-y) and non-oil revenues (+49 per cent y-o-y), added the latest Saudi Arabian Economy – Fiscal Update from Al Rajhi Capital, a leading financial services provider in the kingdom.
Government spending also picked up in Q2, taking midyear expenditure (+26 per cent y-o-y) at 49 per cent of the targeted expenditure for the year. Despite only a 34 per cent y-o-y increase in oil price (spot WTI, with 1 month lag) and likely lower exports, oil revenue increased 82 per cent y-o-y in Q2.
This is likely explained by a switch to quarterly dividends (Aramco), as announced in Q1 2018 press release which then had stated benefits to be seen in Q2.
“We expect this to normalize next quarter. Q2 non-oil revenue increased by 42 per cent y-o-y, helped by the success of reforms such as VAT, expatriate levy (including dependent levy), selective tax (e.g. on tobacco and sugary drinks) and zakat collections,” said Al Rajhi Capital in the report.
Out of the targeted spending of SR978 billion for the full year in 2018, the government has so far spent about SR481 billion, mainly in terms of compensation of employees, social benefits and subsidies. The budget deficit of SR41.7 billion till H1 2018 was funded by both external and internal debt (only about SR12 billion internal debt in Q2).
“As mentioned in our earlier budget report, we see expansionary fiscal policy continuing throughout second half of 2018 on the back of (a) higher non-oil revenue run-rate, and (b) expected 2018 oil revenue comfortably exceeding target, which will support economic growth especially during the current transition phase when many structural reforms have been rolled out to diversify the economy,” Al Rajhi concluded.