Saudi Gazette report

RIYADH — Saudi Arabia’s state budget deficit shrank by a fifth in the second quarter from a year earlier as revenues rose moderately on the back of higher oil prices.

The deficit dropped to SR46.5 billion ($12.4 billion) in the April-June period from about SR58.4 billion a year earlier, data from the Finance Ministry showed on Sunday. It expanded from SR26.2 billion in the first quarter of this year, however.

Officials said the figures showed the world’s largest oil exporter was making good progress in repairing state finances that have been severely damaged by slumping oil prices in the last three years.

“Today’s update presents clear evidence of progress toward achieving fiscal balance by 2020,” Finance Minister Muhammad Al-Jadaan said in a statement.

“Whilst economic challenges remain, we are confident in achieving our fiscal deficit projections for 2017,” he added.

The government has projected a deficit of SR198 billion or roughly 8 percent of gross domestic product this year, down from an actual SR297 billion in 2016.

Revenues increased 6 percent from a year ago to SR163.9 billion in the second quarter. However, that was because of higher oil prices and Riyadh appeared to make little progress overall in developing non-oil revenues, which are key to its long-term drive to wean itself off dependence on energy exports. Oil revenues jumped 28 percent from a year ago to SR101.0 billion while non-oil revenues shrank 17 percent to SR62.9 billion.

Spending dropped 1.3 percent to SR210.4 billion in the second quarter because of a nearly 40 percent fall in the government’s “use of goods and services” — a sign to save money, Riyadh was continuing to hold back on expenditure on infrastructure projects and was cutting operating costs.

The dropping in the budget deficit “reflects an improvement in the management of public finances as a result of economic reform introduced through Vision 2030,” said Saad Al-Shahrani, a high-ranking ministry official.

The Vision 2030 plan, announced by the Kingdom last year, aims to develop Saudi Arabia’s industrial and investment base and boost small- and medium-sized businesses to create local jobs and reduce reliance on oil revenue.

It is the second budget report released by Riyadh since the authorities announced in May they would begin issuing the figures on a quarterly basis to boost transparency.

As part of its reforms, Saudi Arabia is due to introduce value-added tax (VAT) in early 2018 along with the UAE and Qatar.

Three other Gulf states — Bahrain, Kuwait and Oman — plan to follow at a later date.

Riyadh announced in June it had begun taxing foreigners working in the private sector as part of its fiscal reforms.

The country is also preparing to sell just under five percent of energy giant Aramco next year.

Saudi Arabia raised $17.5 billion in its first international bond offering in October 2016. — With input from Agencies