Saudi Arabia expects to book its first budget surplus in close to ten years in the next financial year, coming in at 2.5 percent of gross domestic product or $24 billion (90 billion riyals).
Finance minister Mohammed bin Abdullah Al-Jadaan also said budget revenues next year will be 12.4 percent higher than this year's result.
Despite the contribution of oil to this forecast performance of the Saudi economy, the Kingdom will remain on its diversification course, Al-Jadaan also said, and it will also remain disciplined about public spending.
"We really want to make sure we totally decouple our expenditure from market volatility as that is very important for our economy and the people of Saudi Arabia," Al Jadaan said, as quoted by Bloomberg. "The last thing you want is to continue this behavior of your oil revenue increases so you spend more or reduce taxes. What we need now is to build our buffers and make sure they are able to support our plans for Vision 2030." Related: Jittery Oil Market Could Trigger Consolidation In The Permian
"The surpluses will be used to increase government reserves, to meet the coronavirus pandemic needs, strengthen the kingdom's financial position, and raise its capabilities to face global shocks and crises," said Crown prince Mohammed bin Salman.
For this year, the ministry of finance expects GDP growth of 2.9 percent, to rise to 7.4 percent in 2022. It did not, however, say on the basis of what oil price it is making its forecasts as this is not a practice that Riyadh has, unlike, for instance, Russia.
"There was a 15.7% increase in government revenue for 2022 vs the pre-budget. I think the assumption is now for a price of over $70 per barrel with the sharp increase in oil price," the chief economist of Abu Dhabi Commercial Bank, Monica Malik, told Reuters.
"The budget's expected surplus in 2022 comes not only on the back of higher oil prices and production, but also on the back of scaling back COVID-related spending as well as continuing with transferring the investment burden to the state funds led by PIF", said the head of macroeconomic analysis at EFG Hermes, Mohamed Abu Basha.
By Irina Slav for Oilprice.com
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The projections for both the global economy and global oil demand in 2022 provide optimism and confidence that oil prices will continue their surge.
The quintessential thing for Saudi Arabia is to use part of its enhanced oil revenue to invest in projects supporting the non-oil sector and also accelerate the drive for the diversification of its economy.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London