Saudi Q1 deficit narrows on higher oil revenue: Jadwa Investment

Saudi Arabia’s first-quarter budget showed a major improvement over last year, primarily as a result of higher oil revenues and lower expenditure, Jadwa Investment said in a report on Tuesday.

Government revenue rose 72 percent year-on-year (YoY), as oil revenues surged 115 percent on a rebound in crude prices, following the output deal between OPEC and non-member producers in December last year.

“Based on oil export data from GaStat, we estimate that Saudi oil export revenue in Q1 2017 was around SAR 160 billion,” Jadwa said.

Meanwhile, total non-oil revenue edged up 1 percent YoY, the report added.

On the expenditure side, employee compensation – the biggest contributor to government spending – dropped 5 percent (by SAR 5.1 billion) YoY in Q1. Around 51 percent of this figure was directly as a result of cuts in public sector allowances, Jadwa estimates.

Accordingly, Saudi Arabia’s Q1 fiscal deficit came in at SAR 26.2 billion, nearly half the pro-rata quarterly figure of SAR 50 billion, based on the 2017 fiscal budget figure of SAR 198 billion, Jadwa said.

Looking ahead, the firm expects strict Saudi compliance with OPEC production cuts, which will result in lower crude exports and consequently “less dramatic yearly upswings in oil revenue.”

“That said, in the following quarters we do also expect to see year-on-year improvements in non-oil revenue, especially as white land tax, excise tax on harmful products and expat levies take effect throughout 2017,” Jadwa added.

Meanwhile, cuts in expenditure may be tougher to sustain going forward, following the government’s move to restore allowances for public sector workers.

The Kingdom’s spending will also increase as its household allowance program comes into effect from mid-2017, and capital expenditures are expected to increase substantially in the months ahead, the report added.