We have been following developments with the Aramco IPO, the pre-budget statement and new appointments at Al-Rajhi and SAMA. Click below for more details on these stories.
Saudi Budget for 2016: the figures
Saudi Arabia is projecting expenditure of $224bn in 2016, and revenues of $137bn, to leave a deficit of $87bn. This compares with (preliminary) actual figures of $260bn expenditure in 2015, revenues of $162bn and a deficit of $98bn.
Expenditure is therefore expected to be 14% lower in 2016 than in 2015, while revenues are expected to be 15% lower.
Budgeted expenditure for 2016 looks achievable because spending in 2015 showed two large items that may not be repeated (at least on such a large scale) during 2016. Additional spending on government salaries, social security payments and pensions totalled $23bn in 2015, according to the Saudi Ministry of Finance, whle expenditure on the Grand Mosque in Mecca and the Prophet's Mosque in Medina cost $12bn. Much of the increased expenditure on salaries and related payments is believed to have arisen due to special payments decreed by King Salman when he acended to the thone in January 2015. If neither of these two expediture items were to be repeated in 2016, then, other things being equal, 2016 expenditure would be below the $137 budgeted.
Nonetheless, experience tells us that it is difficult it is to predict actual Saudi expenditure and revenues. The attached excel chart (see below) shows Budget vs Actual figures for 2012-2015, and gives the budgeted figures for 2016. For example, in 2012, actual revenues were almost double those budgeted, leaving a budget surplus of $103bn, despite larger than expected expenditure.
The $98bn deficit reported for 2015 was the result of actual expenditure exceeding budget by 13.5%, and actual revenues undershooting budget by 15%.
By far the most important factor driving actual expenditure is the price of oil and the level of Saudi oil exports. West Texas Intermediate (WTI, one of the most heavily traded oils) sold for about $100/b in 2011, 2012, 2013 and for the first six months of 2014. During the second half of 2014 the price fell to around $50/b, but the average price for the whole of 2014 was only a little less than that recorded in previous years. In 2015, the average price has been about $50/b and the International Energy Agency is expecting it to stay at this level in 2016. Saudi oil production has was 9mn b/d - 9.5 mn b/d in 2012 - 2014, but rose to around 10.5mn b/d in 2015. Following OPEC decision last December to (in effect) abandon its production quota system, there is no expectation that that the Kingdom will reduce oil production over the next few months.
Oil revenues account for 75% of Saudi government revenues and the opportunities to increase non-government revenues are limited. If oil prices remain around the $50/b mark, it is therefore reasonable to assume that revenues in 2016 will be similar to those in 2015. In that context, revenues of $137bn predicted in the 2016 budget look reasonable, given (preliminary) actual expenditure of $162bn in 2014.
Saudi government borrowing
The 2016 budget statement, says that government bonds totalling SR98bn (26bn) were issued in 2015, increasing public debt to $38bn, compared to $12bn a year earlier.
It expected that the Kingdom will raise money on the international bond markets (as opposed to domestic markets) during 2016.
The Kingdom still has huge foreign reserves (SAMA's net foreign assets were $661bn at the end of July 2015), and government sponsored agencies also hold considerable funds. Commercial banks still have capacity to buy government debt. More figures on Saudi Arabia's financial reserves and debt-raising capacity can be seen this article previously posted on the ABA website.
The 2016 budget statement says that four government development funds will provide $13bn in project financing during 2016 – this is not included in the budget figures.
A deficit of $87bn, as projected in the 2016 budget, will put a significant dent in the Kingdom's financial reserves, but it will not, as some have suggested, change the face of Saudi public finances.
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