Saudi Arabia expects to finally flip years of budget deficits, exacerbated by the coronavirus pandemic, into a surplus in 2022, on the back of the oil market’s recovery and rising crude production volumes, as well as a tightening of spending and higher taxes.
As the world’s largest exporter of crude, Saudi Arabia’s economy is inextricably linked to the health of the global oil market, despite significant efforts to diversify and promote its private sector. In a budget statement issued late Dec. 12, the kingdom noted the role played by the OPEC+ alliance’s production cuts, along with the global rollout in vaccines, in supporting a 69.5% rise in Brent prices from January to October.
Indeed, despite a 3.4% drop in Saudi crude production in January-October at 8.9 million b/d, compared to the same months in 2020, the kingdom’s total 2021 revenues are projected to rise to Riyals 930 billion ($248 billion) from Riyals 782 billion ($208 billion) in 2020.
For the fiscal year 2022, the kingdom expects revenues to come in at Riyals 1.045 trillion ($279 billion), a 12% increase from 2021, as the OPEC+ production cuts continue to be unwound.
Expenditures, by comparison, will shrink from Riyals 1.015 trillion ($271 billion) in 2021 to Riyals 955 billion ($255 billion) in 2022, turning a 2.7% budget deficit into a 2.5% surplus. Further surpluses are projected for 2023 and 2024.
“The kingdom seeks — through its oil policy and efforts to support the OPEC+ agreement — to gradually boost its production levels to support the stability of oil prices and achieve a balance between demand and supply to face potential risks on the side of its oil revenues,” the budget statement said.
OPEC and its allies have been steadily tapering the historic 9.7 million b/d in production cuts they implemented during the worst of the pandemic in spring 2020 by 400,000 b/d each month, though expected seasonal demand weakness in the first quarter has led to some speculation that the alliance could consider a pause. OPEC+ ministers will next convene Jan. 4 to decide on February production levels.
Saudi Arabia’s January quota under the deal is 10.12 million b/d, which is 880,000 b/d under its target of 11 million b/d once the OPEC+ cuts are fully tapered, which is expected to occur in late 2022.
Analysts at Riyadh-based Al-Rajhi Capital said the 2022 projected expenditures would require a fiscal breakeven Brent price of around $65/b, while the revenue estimate would appear to be based on a $75/b price, given the roughly 60/40 split between Saudi Arabia’s oil and non-oil revenues. S&P Global Platts assessed Dated Brent at $74.32/b on Dec. 10.
The budget notes that OPEC has forecast global oil demand to grow 4.3% in 2022 to reach 100.8 million b/d, compared to 96.6 million b/d in 2021, and that financial think tanks and institutions have predicted that oil prices will range between $65/b and $90/b.
But it also acknowledges the risks associated with the uncertain trajectory of the coronavirus pandemic, as well as the persistence of global supply chain challenges and increases in inflation, which could pressure oil markets.
Saudi Arabia is aiming to wean itself off its dependency on oil revenues by promoting its non-oil industries, largely through a much-vaunted Vision 2030 program.
Revenue figures in the budget statement show that the non-oil sectors have steadily grown over the last decade and are much less volatile than oil receipts, which follow the gyrations of crude prices.
Crown Prince Mohammed bin Salman “stressed the leading role being played by the kingdom in stabilizing energy markets,” in a statement carried by the official Saudi Press Agency, while also highlighting the 5.4% growth non-oil GDP through the third quarter.
Debt levels in the kingdom stood around 25.9% of GDP, and are expected to shrink to 25.4% by 2024, due to the forecast surpluses.
Source: S&P Global Platts
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