As 2021 concludes, the global economy has been through another year of challenges, including affected supply chains, inflationary pressures, and new Covid-19 variants that have continued to threaten economic recovery. In Saudi Arabia, an effective vaccine rollout and other containment measures have allowed the economy to open, while higher international oil prices have supported a broader recovery.
I am pleased to present the annual KPMG budget report for Saudi Arabia, providing our view on the government’s announced expenditures and revenues. The presented figures are based on the Ministry of Finance’s (MoF) Budget Statement for FY 2022, as approved by the government on 12 December 2021, with our views supported by internal analysis and other sources.
As per the MoF, real GDP growth is estimated to expand by 2.9% in fiscal year 2021, supported largely by a broad pick-up in non-oil economic activity. Most components of non-oil GDP have continued to expand amid an easing of domestic pandemic-related containment measures and as consumer and business confidence have rebounded, owing to the aforementioned high international oil prices.
The continuation of the broad-based recovery in the domestic non-oil sector, combined with an expected increase in domestic oil production, should support robust real GDP growth in 2022.
Such a broad-based pick-up in the non-oil sector should support tax receipts, most notably value added tax (VAT), and other non-oil revenues. A recovery in oil production will, in turn, benefit the oil sector even as oil prices remain elevated – this will support oil-related public sector revenues. These revenues, combined with fiscal prudence, are consistent with the fiscal sustainability program and will improve public finances.
Economic stability and expansion are also expected to be supported by conducive government policies, including Vision 2030 as the central agenda for economic diversification. The 2022 budget indicates economic recovery as the key pillar underpinning the improving fiscal outlook. The economic expansion should also help to support the budget position and debt levels as a proportion of GDP.
Planned expenditure for fiscal year 2022 stands at SAR955 billion, with a continued focus on promoting economic growth, improving spending efficiency and generating employment. The government also remains committed to spending on education, healthcare and social development, again as part of its mission to fulfil Vision 2030 objectives of promoting a better quality of life and a diversified economy.
Total public revenues are forecast to reach SAR1,045 billion in 2022, on the back of the domestic economic recovery and higher oil prices. Tax revenues are expected to represent 27% of total revenues in 2022. The budget surplus in 2022 is expected to be SAR90 billion: the surplus of 2.5% of GDP is substantially better than than the 2.7% budget deficit in 2021. It is expected that public debt will stand at SAR938 billion in 2022, or 25.9% of GDP.
As the public balance sheet is currently reaping the benefits of high oil prices, any sudden change in the energy outlook could weaken this positive view. The energy outlook remains the largest challenge in the risk landscape, along with (related) uncertainty around new Covid-19 variants impacting the global economy and supply chains.
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