The large fiscal consolidation measures introduced in May, sizeable Saudi Aramco and Public Investment Fund (PIF) dividends, as well as curbing of expenditure helped the kingdom contain deterioration in fiscal balance in 2020, according to a BofA Global Research report.
The 2020 preliminary fiscal deficit stood at 298 billion Saudi riyals ($79.4 billion, 12 percent of official GDP estimates), widening from a marginally upwardly revised 2019 deficit (132 billion riyals or 4.5 percent of GDP). This brought the 2020 fiscal deficit to nearly double its original budgetary target of 187 billion riyals or 6.4 percent of GDP. The primary deficit widened to 10 percent of GDP in 2020, up from 3.8 percent of GDP in 2019, and 5.3 percent of GDP in 2018, the report said.
The fiscal breakeven oil price continued to drop, standing at $73/bbl in 2020, from $78/bbl in 2019, and $94/bbl in 2018.
Oil revenues stood at 412 billion riyals, lower than the budgeted 513 billion. The difference is due to lower realized oil production and lower oil prices versus the 2019 estimated budgeted levels.
However, while oil prices and oil production were down 33.7 percent y-o-y and 6 percent y-o-y versus 2019, fiscal oil revenues were only 30.7 percent y-o-y lower thanks to continued Aramco dividends.
“We estimate the "excess" Aramco dividend (i.e. in excess of Free Cash Flow (FCF)) boosted the fiscal balance by 3.5 percent of GDP. Hence, under conditions of a normalized Aramco dividend, the fiscal deficit would have stood in 2020 at $104 billion (15.5 percent of GDP),” the report said.
Non-oil revenue fiscal reforms
Non-oil revenues came 12 percent above their budgeted amount and 7.8 percent versus their 2019 levels, thanks to consolidation reforms introduced in May and collection of exceptional profits from government investments despite lockdown measures due to COVID-19. They stood at 358 billion riyals versus 320 billion riyals targeted and 332 billion riyals in 2019, representing c45 percent of total revenues in 2020 or 13.6 percent of GDP.
Non-oil revenue reform included a 10 percent increase in the VAT rate to 15 percent and a hike to customs duties.
BoFA estimates full-year implementation of VAT and customs duties hike would yield up to 116 billion riyals and 13 billion riyals respectively.
Authorities also implemented budget measures to support the private sector in response to the COVID-19 pandemic. The government introduced in March 2020 a 70 billion riyals private sector support package.
Non-oil revenues were also boosted by an exceptional 15-25 billion riyals dividend by the PIF, according to authorities.
Capex rationalization and tight controls have prevented major over-budgetary spending due to COVID-19 pressures. This is despite fiscal loosening in 4Q20. Preliminary figures for the full-year imply that government spending in 4Q20 likely increased by 33.5 percent q-o-q and 11 percent y-o-y. This is a pattern that has been observed in previous years.
Total spending stood at 1.1 trillion riyals, or 40.6 percent of GDP, 4.7 percent above target. Current spending (87.2 percent of total) was 9.9 percent higher than the target, but capex spending was 137 billion riyals, 20.8 percent below the budget target, generating 36 billion riyals in savings, according to the report.
(Reporting by Brinda Darasha; editing by Seban Scaria)
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