Business News
Saudi Arabia’s Q1 budget slips into deficit at $9.1b as oil revenue slides
Riyadh: Saudi Arabia on Wednesday reported a first quarter budget deficit of 34.107 billion Saudi riyals ($9.09 billion), as oil revenue was hit hard by a combination of sliding global prices, demand and a supply glut in the wake of the coronavirus crisis.
That reversed a first quarter surplus of around $7.4 billion in 2019.
The kingdom – which is trying to diversify its oil-dependent economy – has projected a deficit of 187 billion riyals, or 6.4 percent of gross domestic product (GDP), this year, widening sharply from 131 billion riyals last year.
Total revenues for the first quarter reached 192.072 billion riyals, down 22 pct percent year-on-year, the finance ministry said in a statement on its website.
Oil revenue
Oil revenues dropped 24 percent to 128.771 billion riyals in the same period, mainly driven down by slumping global crude demand and prices as the coronavirus outbreak paralysed large parts of the global economy.
The Organization of the Petroleum Exporting Countries and other large oil producers, including Russia, have agreed to cut output by almost 10 million barrels per day (bpd), or 10% of global oil production, in May-June, in an attempt to balance the market.
While the size of the output cuts are unprecedented, demand has fallen even more and storage for all unused oil is shrinking quickly as global measures to combat the pandemic have brought many economies to a virtual standstill.
Saudi Arabia, the world’s top oil exporter, has registered over 20,000 coronavirus cases as of Tuesday with 152 deaths.
Non-oil revenue
The finance ministry said non-oil revenues was also down 17 percent to 63.3 billion riyals in the period. Total expenditures reached 226.179 billion riyals, rising 4% from a year ago.
Finance Minister Mohammed al-Jadaan said last week he expects the pandemic to cause a slump in activity in the non-oil private sector this year.
Saudi Arabia does not disclose the oil price assumptions behind its budget.
An International Monetary Fund official had told Reuters last year that the Gulf Arab state would need oil prices to average $85-87 a barrel this year to balance its state budget.
The ministry said it would finance the budget deficit through local and international borrowing.
Jadaan said earlier this month that the kingdom could borrow around $26 billion more this year and will draw down up to $32 billion from its reserves to finance the government deficit.
He also said the government expected the COVID-19 crisis to last for a few more months but that it would have a limited impact on its first-quarter revenue.
Saudi Arabia, the world’s largest oil exporter, is facing an unprecedented challenge this year as oil prices have plumbed historic lows.
At the same time, measures to contain the spread of the new coronavirus are likely to curb the pace and the scale of sweeping economic reforms launched by Crown Price Mohammed bin Salman.
The Saudi Arabian Monetary Authority said on Tuesday its net foreign assets, which include securities such as U.S Treasuries and foreign deposits, fell in March to $464 billion, their lowest since 2011.
The nearly $27 billion decline – the biggest monthly drawdown in at least 20 years – signals the kingdom’s urgent need to tap into its vast reserves to offset the economic damage following lower oil prices and a severe coronavirus-driven slowdown of entire sectors of its non-oil economy.
Finance Minister Mohammed al-Jadaan said last week the kingdom would not draw down more than $32 billion from its reserves this year and would instead increase its borrowing to nearly $60 billion to contain a widening deficit.
Early on Wednesday the finance ministry reported a first quarter budget deficit of $9 billion, mostly because of a drop in oil revenues, that reversed a first quarter surplus of around $7.4 billion in 2019.
Oil revenues in the first three months of the year posted a 24% annual decline to $34 billion and pushed total revenues down 22% year on year, the ministry said.
Saudi Arabia, which had registered more than 20,000 coronavirus cases as of Tuesday with 152 deaths, had projected a deficit of $50 billion this year, or 6.4% of gross domestic product (GDP), widening from around $35 billion last year.
But that was before the coronavirus and the plunge in oil prices. Jadaan has said the deficit could widen to up to 9% of GDP this year, but some analysts have predicted a deficit of 22% with oil prices at $30 a barrel.
International oil prices have shed around two thirds of their value since the start of this year and are trading around $21.
“If Finance Minister al-Jadaan’s plans are for merely $32 billion of reserves drawdown then, following a $27 billion reduction in March alone, that means almost all the remainder will be covered by new sovereign debt issuance, assuming there are no further privatisations, because of market conditions,” Hasnain Malik, head of equity strategy at Tellimer, said.
SLOWDOWN The Organization of the Petroleum Exporting Countries and other large oil producers, including Russia, have agreed to cut output by almost 10 million barrels per day (bpd), or 10% of global oil production, in May-June, in an attempt to balance the market.
While the size of the output cuts is unprecedented, demand has fallen even more and storage for all unused oil is filling fast as global measures to combat the pandemic have brought many economies to a virtual standstill.
Jadaan said last week he expects the pandemic to cause a slump in activity in the non-oil private sector too this year and that the government could launch measures to prop up its economy on top of $32 billion in emergency stimulus measures announced last month.
Non-oil revenues in the first quarter fell 17% when compared to the same period one year earlier, with revenues from taxes on goods and services plunging, in a sign of overall economic slowdown in the kingdom.
Saudi Arabia has already cut its 2020 budget by nearly 5% and further spending curbs are likely.
Reuters