Saudi Arabia’s fiscal deficit continues to decline in Q2: Jadwa

Saudi Arabia’s fiscal position has been improving in the second quarter of this year as was seen in the budget performance report by the Ministry of Finance (MoF), Jadwa Investment said in a note.

The Kingdom’s fiscal deficit dropped to SAR 46.5 billion, from last year’s SAR 58 billion, due to a 6 percent increase in government revenue and a 1 percent drop in expenses year-on-year (YoY).

This brings the combined deficit for the year’s first half to SAR 72.7 billion, significantly lower, on a pro-rata basis, than the government’s projected 2017 deficit of SAR 198 billion.

Overall government revenue came at SAR 164 billion, 6 percent higher YoY due to a 28 percent increase in oil revenue which stood at SAR 101 billion. On the other hand, total non-oil revenue dropped by 17 percent YoY coming in at SAR 62.9 billion, with the exception of the “Taxes on Income” segment which increased by 30 percent.

While Jadwa Investment is expecting oil revenue to only mildly improve YoY in Q3 due to the strict compliance with OPEC cuts, the forecast for non-oil revenue was more positive indicating further improvement YoY following the introduction of an excise tax on harmful products, higher expat levies and dependent fees, and a rise in seasonal investment income.

Government expenses declined by 1 percent YoY to a total of SAR 210 billion, which was largely due to a 12 percent dip in capital expenditure whereas current expenditure increased by 1 percent.

“Looking ahead, we do expect to see a significant ramp up in government capital spending in H2 2017, similar to the pattern observed in H2 2016,” the report said.

“That said, the risk of lower than forecasted oil prices could result in budgeted capital spending coming in lower than our forecasted SAR 260 billion, for 2017 as a whole,” the investment banks added.