Saudi Budget 2021 Commentary: Revenue projections ‘reasonable’ based on oil prices

Mazen Al-Sudairi, head of research at Riyadh-based financial services company Al-Rajhi Capital. (Supplied)
Mazen Al-Sudairi, head of research at Riyadh-based financial services company Al-Rajhi Capital. (Supplied)
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Updated 16 December 2020

Saudi Budget 2021 Commentary: Revenue projections ‘reasonable’ based on oil prices

Mazen Al-Sudairi, head of research at Riyadh-based financial services company Al-Rajhi Capital. (Supplied)
  • Expects government oil revenue to range from SR400 billion to SR500 billion next year depending on Aramco’s dividends to the government

RIYADH:  The Saudi government’s 2020 fiscal deficit came in at SR298 billion ($79.5 billion) and is forecast to fall to SR141 billion next year. The government expects SR849 billion of revenues in 2021, which is reasonable based on a Brent oil price of $48 a barrel, said Mazen Al-Sudairi, head of research at Riyadh-based financial services company Al-Rajhi Capital.

He added that he expected government oil revenue to range from SR400 billion to SR500 billion next year depending on Aramco’s dividends to the government (i.e., $45 billion to $75 billion in total dividends). And estimated non-oil revenue to be about SR400 billion, based on increased VAT (a contribution of SR88 billion), reforms, higher private-sector growth, and Public Investment Fund (PIF)/Saudi Central Bank (SAMA) investment returns.

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With strict discipline from OPEC+ members oil prices could surprise on the upside, as the capital expenditures in the oil sector have dropped materially which could lower long-term supply, he concluded.

Al-Sudairi said he believed even while much of the 2021/22 deficits will be funded by debt, the 2020 Debt/GDP ratio — at 34.4 percent — remains reasonable compared with debt levels among other advanced economies and emerging and middle-income countries (63.7 percent), especially after the surge witnessed following coronavirus-related stimulus efforts. The government expects debt to increase to SR1,026 billion by 2023 from SR854 billion in 2020.

Government expenditure, though forecast to be down by 7 percent year on year in 2021, is relatively less important than it has been in the past, as regulatory changes — such as increased women’s employment, e-governance, the opening up of tourism, mortgage subsidies, PIF mega projects — can have cascading benefits that do not necessarily require high direct spending by the government, he added.

• Mazen Al-Sudairi is head of research at Riyadh-based financial services company Al-Rajhi Capital.