Iraqi oil minister says OPEC deal will help to stabilize oil market

Iraqi Oil Minister Thamer Ghadhban speaks to the media at the ministry's headquarters in Baghdad, Iraq October 31, 2018. (REUTERS)
Updated 11 July 2019

Iraqi oil minister says OPEC deal will help to stabilize oil market

  • Baghdad studies contingency plans to deal with possible disruption, including new export routes

BAGHDAD: An agreement between OPEC and its allies to extend oil output cuts until the end of March 2020 will lower inventories, help stabilise the market and address price volatility, Iraqi Oil Minister Thamer Ghadhban said on Wednesday.
Asked about OPEC’s position on prices, Ghadhban said the general view was that $70 per barrel or higher was acceptable, adding that the producer group sought prices that were fair to consumers and producers alike. Brent oil is currently near $65.
The Organization of the Petroleum Exporting Countries and allied producers led by Russia agreed earlier this month to prolong oil output cuts, seeking to prop up the price of crude as the global economy weakens and U.S. production soars.
Iraq hopes navigation in the Strait of Hormuz will remain open and uninterrupted, said Ghadhban, who was speaking on the sidelines of an energy conference in Baghdad.
“No fewer than 18 million barrels pass through the strait every day ... the region needs to remain stable,” he said.
Prime Minister Adel Abdul Mahdi said on Tuesday that any disruption to oil exports through the Strait of Hormuz would be a “major obstacle” for the economy of Iraq, which has few oil export outlets.
The Iraqi government was studying contingency plans to deal with possible disruption, including alternative routes for oil exports, Abdul Mahdi said.
A vital shipping route linking Middle East oil producers to markets in Asia, Europe, North America and beyond, the Strait of Hormuz has been at the heart of regional tensions for decades.
Recent months have seen a bout of instability in the region, with six tankers attacked since May amid escalating tensions between Tehran and Washington.

Decoder

Strait of Hormuz

The Strait of Hormuz is a vital shipping route linking Middle East oil producers to markets in Asia, Europe, North America and beyond.


Saudi Arabia’s 2020 budget focuses on fiscal stability: Review

Updated 16 December 2019

Saudi Arabia’s 2020 budget focuses on fiscal stability: Review

  • It aims to transit the economy away from the country’s dependency on oil by developing the private sector

RIYADH: Saudi Arabia’s 2020 budget announced on Dec. 9, 2019 is progressive and focuses on balancing fiscal stability and economic growth despite oil market volatility this fiscal year, according to a review released by KPMG Al Fozan & Partners (KPMG Saudi Arabia), the leading provider of audit, tax and advisory services in the Kingdom.

The latest budget continues to support diversification efforts, transitioning the economy away from its dependency on the oil sector by developing the private sector and enhancing its contribution to achieving Vision 2030 goals and targets.

Budgeted revenue is expected to reach SR833 billion ($222 billion) in 2020, 62 percent of which is driven mainly by oil revenue, while budgeted expenditure is projected at SR1.02 trillion. Fiscal deficit stands at SR187 billion (6.4 percent of estimated 2020 gross domestic product) compared with SR131 billion (4.7 percent of GDP) in 2019.

Public debt is anticipated at SR754 billion, 26 percent of the estimated GDP in 2020, growing 11.2 percent compared to the previous year. 

Commenting on the budget, Dr. Abdullah Hamad Al-Fozan, chairman of KPMG Saudi Arabia, said: “The proposed budget focuses on maintaining fiscal stability and sustainability, improving the diversification of revenue sources, and taking measures to advance the economic and social development of the country.” 

He added: “Despite the oil market volatility, which had some impact on the expenditure, the government has made notable progress on the Vision Realization Programs. In addition, the allocation of over SR1 trillion budget expenditure for 2020 demonstrates the government’s commitment toward driving economic growth.” 

Meanwhile, the total real GDP growth is expected to reach 2.3 percent in 2020, as a result of relatively stable oil prices, implementation of Vision 2030 programs, and increased spending on infrastructure.  

Non-oil revenue is expected to touch a new high of SR320 billion in 2020, compared to SR315 billion expected in 2019, an increase of 1.6 percent, supported by the government’s continued efforts to develop non-oil sectors with higher economic and social return.

HIGHLIGHTS

• Budgeted revenue is expected to reach SR833 billion ($222 billion) in 2020, 62 percent of which is driven mainly by oil revenue, while budgeted expenditure is projected at SR1.02 trillion.

• Fiscal deficit stands at SR187 billion compared with SR131 billion in 2019.

• Public debt is anticipated at SR754 billion, 26 percent of the estimated GDP in 2020, growing 11.2 percent compared to the previous year.

Dr. Hussain Abusaaq, chief economist and head of research at KPMG Saudi Arabia, said: “The forecasted general budget figures of higher expenditures over expected revenues, illustrates the government’s efforts of diversifying the economy through continuous implementation of Vision 2030 programs. The key focus of the 2020 budget is to maintain the balance between growth and fiscal sustainability while increasing spending efficiency.”  

Oil is expected to remain a major contributor to the Kingdom’s revenue, though it is expected to decline by 14.8 percent to SR513 billion in 2020 from SR602 billion in 2019, primarily due to volatility in oil prices owing to trade war.

Likewise, non-oil revenue is expected to reach SR320 billion in 2020, an increase of 1.6 percent over an expected SR315 billion in the previous year. The surge in non-oil revenue reflects the government’s ongoing efforts to diversify its income streams and reduce dependency on oil. 

At SR200 billion in 2020, tax revenues are projected to be 1.2 percent lower than last year’s value of SR203 billion. Taxes on goods and services provides the largest share of non-oil revenue at 44.4 percent.

Ismail Daham Alani, public sector head at KPMG Saudi Arabia, commented: “A number of Vision Realization Programs under the Saudi Vision 2030 initiative have entered the execution phase and achieved a good level of progress in 2019. The positive impact of these programs will be reflected in the medium term.” 

In addition,  the Kingdom’s debt-to-GDP ratio is expected to equal 28 percent by 2021, compared to 25 percent predicted last year, due to volatility in the oil prices in 2019. Despite debt increasing in 2019, the Kingdom’s debt-to-GDP ratio remained significantly lower than many of its peers.

“The government’s efforts and focus on achieving sustainability and fiscal balance is expected to be beneficial for businesses and public policy planning. We expect Saudi Arabia to continue progressing toward achieving its Vision 2030 objectives since volatility in oil prices are likely to decrease this year,” Al-Fozan concluded.