Non-oil revenue growth to drive Saudi fiscal stimulus, says Al Rajhi Cap

Saudi Arabia is likely to meet or even exceed its 2018 spending targets, without compromising the budget deficit target, driven by the Kingdom’s higher-than-expected oil revenue along with a healthy growth in non-oil income, Al Rajhi Capital said in a report on Tuesday.

The Kingdom on Monday announced its Q1 2018 fiscal update, with total revenue up 15 percent year-on-year (YoY) at SAR 166.2 billion, majorly led by non-oil revenue growth.

Reforms such as VAT, expatriate levy (including dependent levy), and selective tax (e.g. on tobacco and sugary drinks) were the primary sources for the spurt in non-oil revenue, the report said.

Higher tax and zakat collections also contributed to better non-oil revenue realization, according to statement from the Ministry of Finance.

“We believe the non-oil revenue is now more integrated with economic growth, which is the key determinant of growth in tax collection from various sources,” Al Rajhi Capital said.

Oil revenue, meanwhile, rose only 2 percent YoY to SAR114 billion, despite 16.5 percent YoY increase in oil price, the financial advisory firm noted.

“We believe this is attributable to: change in royalty fee and dividends from Aramco, and likely increase in Capex,” it added.

The Q1 2018 spending increased 18 percent YoY to SAR 200.6 billion, which is 20.5 percent of the full-year spending target.

Al Rajhi Capital expects to see “expansionary fiscal policy” continuing in 2018 as both oil and non-oil revenue streams are likely to grow.

“We expect the oil revenue to improve as average oil price is trending up and we expect Aramco to reduce capex in H2 2018,” it said.

The report said if oil prices average $65 per barrel for the April-December 2018 period, the year’s oil revenue is estimated at SAR 547.5 billion – which is 11.3 percent higher than the budget target of SAR 492 billion.