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Saudi budget 2022: Local forecasters see surplus as World Bank, IMF forecast deficit reduction

CAIRO: Saudi Arabia will announce its budget for fiscal 2022 in December amid various forecasts from international and local organizations, some predicting a surplus while others expecting a reduction in the budget deficit.

However, in its pre-budget statement, the Saudi Ministry of Finance predicted that the budget balance would reach deficits of SR 85 billion ($ 22.7 billion) and SR 52 billion in 2021 and 2022 respectively.

The deficit for this year, according to the official projection, will be around 2.7% of gross domestic product, while next year it is expected to narrow to 1.6%.

Despite varying forecasts, the Kingdom’s economy has remained vibrant despite restrictions related to COVID-19, mainly due to government support for different sectors, as evidenced by various indicators and reports released by leading organizations such as the International Monetary Fund, World Bank, Goldman Sachs, etc.

Recently, the World Bank revised the Kingdom’s growth forecast for 2022 from 3.3% to 4.9%.

The World Bank report increased Saudi Arabia’s export growth by more than double, from 4.7 percent to 9.6 percent. The Kingdom’s industrial production is now expected to grow 5.4%, up from 2.4% in April.

Improving vaccination rates, removing restrictions linked to the pandemic and resuming religious tourism are likely to boost Saudi non-oil production, which is expected to increase 4% in 2021 and 3.3% in 2022.

These projects are based on the Kingdom’s performance in 2021. For example, industrial production grew at an annual rate of 7.7% to reach its highest level since April 2020, according to data released by the General Statistics Authority. . It is also the highest growth rate since June of this year.

In addition, non-oil manufacturing activities grew by 4% per year in October to stand at their highest level since March 2020. GASTAT said the sector has recovered from the adverse effects of the pandemic, which hampered the Kingdom’s international trade and exports.

Jadwa Investment, an investment bank in Saudi Arabia, expects a budget surplus of around SR 35 billion for 2022, representing 1% of GDP. The Riyadh-based company explained that oil revenues are expected to be of a considerable size as they based their calculations on the assumption of oil price at $ 71 per barrel.

Non-oil revenues will also see an increase due to higher income taxes due to better business performance. Hajj and Umrah pilgrims, whose numbers are expected to increase following previous pandemic restrictions, will also generate greater income for the Kingdom. Public spending is also expected to decline by 6% per year.

On a related note, Al Rajhi Capital, another investment bank in the Kingdom, expects a surplus of around SR 25-45 billion for next year. He had almost the same forecast of oil and non-oil income and expenses compared to Jadwa.

On the other hand, international organizations still expect the Kingdom to record deficits in 2022 despite the mention of improvements from this year.

The World Bank said in its Macroeconomic Poverty Outlook for the MENA Region that the budget deficit will decline from 3.8 percent – as a percentage of output – in 2021 to 2.2 percent next year. He added that the Kingdom will not reach a balanced budget balance by 2023, as shown by the country’s balanced budget program.

The International Monetary Fund had somewhat similar forecasts, forecasting a budget deficit of 1.8% in 2022.

However, Fitch Ratings was even more pessimistic in this regard as they forecast a 3.2% budget deficit for next year, he previously said on his website. The rating agency has been more “cautious” in its assumptions related to the oil market and production.

Additionally, the New York-based company added that it assumed a more aggressive trajectory for government spending compared to numbers in the ministry’s pre-budget statement.

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