SAUDI ARABIA: Pre-budget statement sees 2022 spending up 9% y/y but a 2.3% of GDP surplus

GULF COUNTRIES - In Brief 30 Sep 2022 by Justin Alexander

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The pre-budget statement was published late on Friday evening Riyadh-time (MoF). The final budget, out in December, typically sticks with the expenditure allocation used in this statement but adjusts the revenue estimate in line with the oil outlook at the time. KSA has been producing these statements since 2019, part of a series of reforms to improve the budget process and boost transparency that have received commendation from the IMF as regional best practice. The Ministry of Finance forecasts real GDP growth this year at 8.0%, including 5.9% non-oil (up from 5.3% in H1). This would imply oil growth of 11.9% (down from 22.1% in H1). The non-oil forecast is quite ambitious, equivalent to a 7.3% h/h and 6.5% y/y growth in H2, but the sector has been performing well recently. The implied oil forecast, meanwhile, seems surprisingly pessimistic. Looking just at crude oil, which is the bulk of the sector, if production were to be flat at 11m b/d in November and December (we will find out the plan when OPEC+ meets next week), then H2 output would be about 6% higher than in H1. To make it flat would require a -1.5m b/d cut to 9.5m b/d in November and December, on the scale of the cut in May 2020 and far more than even the most hawkish voices in OPEC+ (Russia) are currently suggesting. GDP growth is forecast to pick up to 6% in 2024, which seems optimistic unless there is a significant ramp-up in oil output, and 4.5% in 2025. Inflation is forecast at 2.6% which seems reasonable (in August it was 3.0% y/y and 2.2% YTD average) and then seen stabilising at 2.1% in 2023-25. TABLE 1 Expenditure for 2022 is expected to rise 9% y/y (close to the 10% y/y increase in H1) and 18.5% a...