The growing budget deficit and debts of Saudi Arabia due to...

  Oil revenues drop 30% year-on-year in the third quarter of 2020 (Getty)
Today, Wednesday, the Saudi Ministry of Finance announced that the Kingdom recorded a budget deficit of 40.768 billion riyals equivalent to 10.87 billion dollars in the third quarter of this year, as a result of revenues reaching 215.577 billion riyals, a decrease of 30% and expenditures of 256.345 billion in the three months ending in September / Last September. 

This came in the “Preliminary Statement of the State’s General Budget for the fiscal year 2021” published by the Ministry on its website (the text is fully attached to this report), which included two main parts: first, the most important financial and economic developments in 2020, and the second, the most important financial targets and economic indicators In 2021 and the medium term.

Under the heading “Warning” at the beginning of its preliminary statement, the Ministry pointed out that the estimates contained therein are preliminary in light of the information available at the time of its issuance, and it may be updated in the final budget statement that will be issued at the end of this year.

She indicated that the uncertainty surrounding the Corona crisis may directly affect the estimates in light of local and global developments during the period between the issuance of the two reports and the continuing period of the pandemic.

In the “executive summary”, the ministry said that Saudi Arabia is not isolated from the effects of the Corona crisis on both the public finances and the economy, because by virtue of its economic relations it affects and is affected by global events and conditions, as the pandemic affected the activity of the local economy, in addition to the negative effects of the global economic recession and low demand in particular. In the oil market, which witnessed unprecedented sharp drops in prices.

In details, the ministry revealed that Corona affected the real GDP growth forecast in 2020, and it expects the decline in the oil and non-oil sectors, taking into account the performance of economic indicators during the first half of the year, while it is expected to record the gross domestic product. The real price decreased by 3.8% in 2020, with an improvement in economic performance during the second half.

According to the ministry, these developments cast a shadow over the next year, as preliminary estimates indicate real GDP growth of 3.2% in 2021, and medium-term estimates of growth rates have been revised in light of local and global financial and economic developments.

Increase the burden of taxes and fees

In light of the uncertainty associated with the pandemic and its impact on the oil markets, which directly affected the objectives and requirements of public finances, especially government spending, in addition to the impact of the precautionary measures and incentive initiatives taken by the government since the beginning of the crisis, which included exemptions and postponements in paying fees and taxes to support the private sector, To find more stable and regular sources of revenue to counter the negative impact of the crisis on the revenue side by increasing the value-added tax rate from 5% to 15% as of July 2020.

In addition, customs duties were increased for a number of commodities that began to be applied on June 20, 2020, with the continuation of the implementation of initiatives according to the previously announced on the revenue side.

Accordingly, the Ministry expects that the total revenues for the year 2020 will reach about 770 billion riyals, a decrease of 16.9% compared to the year 2019, and it is estimated that the revenues will reach about 846 billion riyals in 2021, and it is estimated that they will grow in the medium term to reach about 928 billion Riyals in the year 2023. (Dollar = 3.7503 Saudi riyals).

As a result of the measures taken of additional spending on the approved budget to confront the crisis, and despite seeking to achieve savings in some expenditures, the Ministry expects total expenditures for 2020 to rise from the approved budget level of 1020 billion riyals to reach 1068 billion riyals, as the government seeks to enhance the efficiency of spending and direct it to support The priority sectors and the most affected.

The ministry estimates that expenditures will reach about 990 billion riyals in 2021, and that they will reach 941 billion riyals in 2023.

Fiscal deficit and public debt in 2021

The Ministry also expects that the pandemic crisis will lead to the public budget deficit reaching about 12% of GDP for the current year, but with a re-reduction to reach about 5.1% of GDP in 2021, in response to the requirements of the stage, taking into account the enhancement of the efficiency and continuity of spending on initiatives And the provisions of the system of support and social benefits and the continuation of implementing projects and programs to achieve the vision in the medium term

It is also expected that the deficit will continue to decline gradually, reaching about 0.4% of GDP in 2023, and that the total public debt in 2020 will reach about 854 billion riyals, which is 34.4% of GDP, and that the balance of reserves will be preserved. At the end of the year, according to the approved budget, at 346 billion riyals, or 14% of GDP.

In the report, an indication that the ceiling for the ratio of public debt to GDP has been raised from 30% to 50%, and it is expected that this ratio will not be reached in the medium term.