The Saudi Arabian Government’s oil revenue increased by 67 percent year-on-year in the second quarter of 2018 to 273 billion Saudi riyals ($72.8 billion), while non-oil revenue also saw a significant increase of 42 percent to 184 billion riyals.

However, the leap in oil revenue may be due to Saudi Aramco’s switch to payment by quarterly dividends, according to analysts, which was announced by the Ministry of Finance in May.

In a note published on Wednesday morning, Fahad Al Turki, chief economist and head of research at Jadwa Investment, said the change meant that part of the revenue for the first quarter was not received until the second quarter of 2018.

Government efforts to raise non-oil revenue have increased thanks to gains from taxes on goods and services, which nearly tripled year-on-year, to 29.7 billion riyals, said Al Turki. A 5 percent value added tax was introduced on a range of goods and services in the kingdom in January.

In fact, by the end of the first half of the year, the government had already raised 62 percent of the projected 85 billion riyals from taxes on goods and services that it had hoped to raise in 2018 - a total of 52.3 billion riyals. 

A fiscal update from Al Rajhi Capital last week also showed that there had been a sharp improvement in the Saudi fiscal deficit – standing at 41.7 billion riyals at the end of June 2018, suggesting that it is on track to be around 50 per cent lower than the full-year deficit of 195 billion projected by the government.

Al Rahji also mentioned the change in the way Aramco’s dividends are paid as a potential contributor, and noted that it could be the reason oil revenue for the quarter was so much higher than its own projection of 134 billion riyals.

But, the update also noted the improving oil price - $66.4 US per barrel (bbl), up from $49.7/bbl in the same period a year earlier, as a factor.

“In our view, higher than expected oil revenue and implementation of reforms are driving the transformation of the economy in a successful manner.

“We expect the government to meet or exceed 2018 spending targets without compromising the budget deficit target. Q2 2018 budget deficit at 7.4 billion riyals implies that the government is in the right direction to achieve this target,” the update concluded.

An economic update on the Saudi Arabian outlook from NBK published late last month said the kingdom’s economy appeared poised to rebound this year after a contraction in 2017.

The update, by senior economist Omar Al-Nakib, predicted an acceleration of 2.2 percent in economic growth in 2018, as oil output increases and domestic demand recovers.

However, areas of concern highlighted included a lag in bank credit growth to the private sector, of 0.7 percent year on year in the first quarter of 2018, which the update noted was ‘far below levels that would be commensurate with a deep-rooted and sustainable private sector recovery’.

Saudi unemployment was highlighted as another concern, despite an acceleration into the government’s Saudisation policy.

“The authorities intend to bring the unemployment rate down from 11.6 percent in 2015 to 7.0 percent by 2030. However, the rate keeps going up, reaching 12.9 percent in the first quarter of 2018, - the fourth consecutive quarterly rise - as the labor force expands at almost twice the rate of employment,” said Al-Nakib.

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(Writing by Imogen Lillywhite; Editing by Michael Fahy)

(imogen.lillywhite@thomsonreuters.com)

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