Riyadh – Mubasher: The recent decline of the Saudi budget deficit does not indicate that the Kindgom's budget is no longer heavily dependent on oil revenues, Moody’s Investors Service said in a report released on Thursday.
A recent report released by Saudi Arabia’s Ministry of Finance (MoF) has indicated a decline in the budget deficit, to reach 37% of the Kingdom’s full-year deficit forecast of SAR 198 billion.
“Although the greatly reduced fiscal deficit is credit positive for the sovereign, the smaller deficit almost entirely reflects a sharp increase in oil revenues from higher oil prices, illustrating Saudi Arabia’s oil dependence,” the report showed.
On Monday, the Kingdom said its budget deficit for the period starting January and ending June amounted to SAR 72 billion.
Saudi oil revenues jumped 63% or SAR 82.1 billion in H1-17, compared to the same period in the year before. The increase came despite oil production cuts by the Organization of Petroleum Exporting Countries’ (OPEC) output constraints.
OPEC constraints are set to continue until March 2018.
Oil revenues made up 69% of Saudi Arabia’s total government revenues in H1-17, compared to 55% in the corresponding period in the year earlier.
“Despite the government’s wide-ranging economic and fiscal reforms to reduce its dependence on oil revenue, the results of efforts to grow non-oil revenue have been mixed,” Moody’s added.
“Full-year fiscal consolidation will remain contingent on oil price stability in the second half of the year, given the modest progress at increasing non-oil revenues,” Moody’s said, noting that the government’s oil revenue target of SAR 480 billion may still be “challenging”.
The ratings agency further projected that non-oil revenues for Saudi Arabia were likely to be lower than the government’s budget target of SAR 212 billion, owing to the “weak performance so far, and no additional major reforms planned ahead of the introduction in 2018 of [the] value-added tax.”
“Given that total spending in the first half was only 43% of the budgeted amount, the government is increasingly likely to undershoot its spending target, which would put further pressure on non-oil GDP growth,” Moody’s concluded.
