If oil prices remain at US$60, Saudi Arabia may cut its deficit to less than 5% of GDP

According to a report from Arab News on May 6, Moody's estimates that if oil prices average US$60 per barrel, Saudi Arabia, the world’s largest oil exporter, may have its budget deficit this year reduced to its GDP.

Last year, as the oil price plummeted when the epidemic broke out, and the short-lived oil price war between OPEC + allies Saudi Arabia and Russia for market share, the deficits of all oil-producing countries inflated sharply.

According to estimates by the International Monetary Fund (IMF), Saudi Arabia’s fiscal deficit as a percentage of gross domestic product (GDP) soared to 11.

Data shows that this year, due to rising oil prices and the gradual relaxation of the OPEC + production reduction plan in the context of global demand growth, Saudi Arabia's deficit as a percentage of GDP will drop to single digits, or even less than 5%.

Official data on Tuesday showed that Saudi Arabia reduced its deficit to US$1.

Moody’s vice president and senior analyst Alexander Perjessy pointed out: “The decline in the government budget deficit in the first quarter of this year relative to the fourth quarter of 2020 was mainly due to the increase in oil prices and the sharp seasonal decline in expenditures.

The IMF said in the latest report that Saudi Arabia's fiscal deficit this year is expected to fall to 4.

The IMF pointed out: "The increase in value-added tax, the abolition of the cost of living allowance (COLA), increased attention to the efficiency of capital expenditures, and the planned further reform of domestic energy pricing are all important factors in the planned fiscal adjustment and should not be reversed or postponed.

　　Wang Jiajing excerpted and translated from Arab News

　　The original text is as follows:

　　Saudi Arabia Could Slash Deficit To Below 5% Of GDP At $60 Oil

　　The world's largest oil exporter, Saudi Arabia, could see its budget deficit drop to below 5 percent of gross domestic product (GDP) this year if oil prices average $60 per barrel, according to estimates from Moody's carried by Arab News.

　　Last year, the deficits of all oil-producing nations ballooned as oil prices collapsed at the onset of the pandemic and during the short-lived oil price war for market share between OPEC+ allies Saudi Arabia and Russia.

　　As per estimates from the International Monetary Fund (IMF), Saudi Arabia's fiscal deficit soared to 11.

　　This year, due to the higher oil prices and the gradual easing of the OPEC+ production cuts amid growing global demand, Saudi Arabia is set to bring its deficit to a single-digit percentage of GDP, and even below 5 percent, according to Moody's.

　　Saudi Arabia narrowed its deficit to US$1.

　　To compare, at the height of the oil crisis in the second quarter of 2020, Saudi Arabia's deficit surged to as much as US$29 billion.

　　"The decline in the government budget deficit during the first quarter of this year relative to the fourth quarter of 2020 is mostly due to higher oil prices and a large seasonal drop in spending," Alexander Perjessy, vice president, senior analyst at Moody's, told Arab News.

　　The IMF, for its part, expects Saudi Arabia's fiscal deficit to decline to 4.

　　The fund, however, warned that Saudi Arabia needs to continue with structural reforms to improve its finances.

　　"The VAT rate increase, the removal of the Cost-of-Living Allowances (COLA), the increased focus on the efficiency of capital spending, and planned further domestic energy price reforms are all important contributors to the planned fiscal adjustment and should not be reversed or delayed," the IMF noted.