Saudi Arabia’s public finances have taken a battering since the 2014 drop in oil price. In the five years since the “the great oil bust” which saw the price of crude drop by roughly 40 per cent, the kingdom had to cope with one budget deficit after another.
The trend was set to continue during 2019 with the Saudi Finance Minister Mohammed Al Jadaan announcing in October that the kingdom was expected to run a budget deficit of 128 billion riyals ($34.1 billion).
Yesterday Al Jadaan contradicted his earlier pessimism for 2019 by announcing that Riyadh had a budget surplus of 27.8 billion riyals (($7.4 billion) in the first quarter of this year, marking the kingdom’s first budget surplus since 2014.
Al Jadaan made the announcement at a conference in Riyadh where he spoke about the Saudi economy emerging from a 2017 recession. “These results clearly illustrate the remarkable progress achieved in the performance of our fiscal position,” Al Jadaan told the audience of Saudi and international bankers.
Higher oil revenue and the introduction of value-added taxation as well as subsidy cuts are said to have helped the kingdom to kick start its economic recovery, which has been further hampered by a bloody and expensive war with Houthi rebel groups in Yemen since 2015. Riyadh is expected to increase state spending by seven per cent this year in an effort to spur economic growth.
Economic analysts described the news as slightly mystifying. “At first glance, the data seem surprising given that oil revenue should be weaker year-on-year in the first quarter based on price and production performance,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank, according to Bloomberg.
Another Bloomberg expert on Middle East economy was quoted saying: “The increase in oil revenue is slightly puzzling: average oil prices were lower last quarter compared with a year earlier and the increase in production wasn’t enough to offset that. So what could explain the rise? Either higher transfers from Saudi Aramco or a rollover of oil income from previous quarters.”