Saudi budget revenues gaining recovery in 3Q 2020

The improvement of oil prices, the raising of VAT, and the cancelation of additional financial allocations in government spending to enhance potential financial savings

  
Cars drive past the King Abdullah Financial District in Riyadh, Saudi Arabia December 18, 2018.

Cars drive past the King Abdullah Financial District in Riyadh, Saudi Arabia December 18, 2018.

REUTERS/Faisal Al Nasser

RIYADH — Prominent Saudi economic experts expect that the Kingdom’s budget revenues would recover starting from the third quarter of 2020 as against the results of the second quarter.

They attributed this mainly to major strategic factors that would contribute to a significant increase in state revenues. These factors include the lifting of the lockdown imposed to stem the spread of coronavirus pandemic, the improvement of oil prices, the raising of value-added tax (VAT), and the cancelation of additional financial allocations in government spending to enhance potential financial savings, Asharq Al-Awsat newspaper reported.

Economic consultant Yahya Al-Hujairi said that the ceiling of expectations for the recovery of Saudi budget revenues in the third quarter is very high, thanks to the inevitable measures and reforms that the Kingdom has adopted before and during the pandemic.

“One of the most important boosters to the expected recovery of Saudi revenues was the return of economic activity and the improvement of oil prices and VAT, as well as the abolition of government allocations, all of which would enhance financing capability of the State’s treasury,” he said.

He added that vital commercial activities as well as the capacities and capabilities enjoyed by Saudi Arabia in production and industry are sufficient to increase revenues significantly over the coming months.

Another prominent economist Dr. Khaled Ramadan expected the revenues would recover again during the third quarter due to major factors, mainly the return of economic activity to normalcy, the increase in oil prices and their cohesion above an average of $40 per barrel.

Other factors include the increased VAT, which would double non-oil revenues, apart from the cancelation of the cost of living allowance. All these are instrumental in bringing down spending and may achieve savings during the second half by about SR36 billion.

The increase in oil prices and their cohesion above an average of $ 40 per barrel is supported by many estimates pointing to improvement of prices to the level of $50 by the end of the current year, Ramadan said indicating that the increase in VAT that the country started implementing from July 1 will double non-oil revenues.

“The worst phase had already been overcome with the return of activity in various economic sectors with the practice of businesses in a normal way and that would be reinforced by improved revenues starting from the third quarter,” he said while expecting government revenues to reach about SR657 billion by the end of this year as this would in turn contribute to raising the country’s cash reserve to $420 billion.

Ramadan said that the receding economic effects of the pandemic would be a historic opportunity for the private sector to reduce excessive dependence on government spending and increase its contribution to the Saudi economy.

On his part, Dr. Abdul Rahman Baeshen, head of Al-Shorouk Center for Economic Studies, pinned great optimism about the recovery of Saudi revenues during the past three months, in light of enhanced data of production and reform, attracting investment, and reviving the private sector economically and commercially at a time when the global energy markets are witnessing an increase in oil prices, which would boost revenue growth significantly over the coming period.

Baeshen agrees on the four stimuli, noting that it is capable of reviving the Kingdom’s revenues before the end of this year, especially the high price of oil and the increasing recovery of the national economy with enhanced sentiments about public awareness to guard against coronavirus infection and the increasing numbers of recovery cases in the country announced by the Ministry of Health.

“The Kingdom’s continuation of comprehensive reform of economic, trade and investment policies along with launching of initiatives supportive to business activities and production as well as promoting local content are all factors that would strengthen the national economy in light of the continuing pandemic,” he added.

 

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