Jadwa investment says $40 a barrel oil enough to support Saudi budget

Jadwa Investment
For full coverage of business developments in Saudi Arabia, see MEED

Riyadh’s Jadwa Investment chief economist and head of research Fahad Alturki said in an investment note circulated today that oil prices close to present levels will be sufficient to deliver income foreseen in Saudi Arabia’s 2016 budget released on 28 December.

“We estimate a price of $40.3 a barrel for Saudi export crude (around $42.8 a barrel for Brent) and production of 10.2m barrels a day are consistent with the revenue projections contained in the budget,” Alturki said. “We expect both revenues and expenditures in 2016 to be above the budgeted level, but the differential will be smaller as the government becomes more prudent in its spending procedure. We forecast a budget deficit of SR 313 billion (12.6 percent of GDP) based on oil price of $47 a barrel for Brent in 2016.”

The kingdom’s 2016 budget envisages total government revenue of SR 513.8bn, 15.5 per cent lower than the figure the Ministry of Finance estimated for 2015. The budget deficit for the year to come is forecast to be SR 326.2bn, 11 per cent lower than in 2015.

“The budgetary performance in 2015 came up close to our expectations with a deficit of SR 367 billion, or 15 per cent of GDP,” Alturki said. “Despite the deficit being the largest on record, reduced spending has meant a much smaller than anticipated deficit. This is the second consecutive fiscal deficit, and was mainly due to both a steep fall in revenues and a rise in one off expenditures associated with the royal succession.”

Government revenue fell by 41.5 percent in 2015 to SR 608bn, its lowest level since 2009. Alturki said Jadwa Investment estimates oil revenue fell by 51 per cent in 2015 despite record production of 10.2m b/d in the year to November. Fiscal expenditure was reduced for the first time since 2002 to reach SR 975 billion, SR 136 billion lower than 2014.

Analysts say Saudi Arabia has the capacity to finance the projected 2016 budget deficit using Saudi Arabian Monetary Agency’s (SAMA) stock of net foreign assets, and domestic borrowing. SAMA net foreign assets totalled $628 billion at the end of November. Public debt rose from a long-term low of SR 44.3 billion in 2014 to SR 142 billion in 2015, equivalent to 5.8 per cent of GDP.