Saudi 2017 budget deficit to miss forecasts on lower capex: Al Rajhi Capital

Saudi Arabia’s fiscal deficit for the year is expected to be less than the government forecast of 8.2 percent of GDP (SAR 198 billion) and the 9.3 percent deficit estimated by the International Monetary Fund (IMF) due to lower capital expenditures, Al Rajhi Capital said in a budget report.

“While we had earlier expected capital expenditure to pick up in later half of 2017, we now believe capex is likely to be around 3-9 percent lower than 2016 level,” the firm said.

The Saudi government has borrowed SAR 139.3 billion in 9M 2017 more than the deficit, which likely helped government deposits increase at banks, implying that further drawdowns from reserves may not be much in the near future.

Saudi Arabia announced a deficit of SAR 48.7 billion for Q3, and a deficit of SAR 121.5 billion for the first nine months of 2017.

Third-quarter oil revenue came at SAR 94.3 billion, lower than Q2 oil revenue despite similar average price for the quarter. This could be due partly to lower exports or discounts to customers or lower dividend from Aramco, the report said.

Meanwhile, Q3 non-oil revenue fell slightly short of the pro-rata quarterly target but was 80 percent higher year-on-year (YoY), mainly helped by recently introduced taxes and fees, as well as revenues from the Saudi Arabian Monetary Authority (SAMA) and the Public Investment Fund (PIF).

With the run-rate of expenditure so far this year, government spending will likely reach around 85 percent of its target, the report said. As oil prices have slightly improved in Q4, spending could slightly increase this quarter but still could fall around 9-15 percent short of its SAR 890 billion target.

Oil revenue is likely to hit SAR 425 billion for the year, 11 percent below the annual target.

“In our view any shortfall in revenues would be more than offset by reduction in expenditure; hence we are fairly confident that the government will be able to meet its fiscal target in 2017,” Al Rajhi Capital said.

The Saudi government’s debt stands at SAR 375.7 billion at the end of Q3 2017, with SAR 37 billion borrowed internally so far this year, while SAR 33.7 billion was borrowed from overseas.

“We believe the domestic banks have enough liquidity to meet government bond issuances without meaningfully distorting SAIBOR,” the brokerage said, adding that Kingdoms debt to GDP currently stands at approximately 14.5 percent, and is likely to be capped at 30 percent by 2020.

“Compared to other commodity based economies, we note that the debt levels in the Kingdom remain very healthy,” the report said.