For the first time, Saudi non-oil income outstrips oil income

The Saudi Ministry of Finance has revealed the budget of Saudi Arabia for the third quarter in 2020, which indicated that the volume of revenues amounted to SR215.6 billion with expenditures of SR256.3 billion.

The deficit has been largely narrowed to SR40.8 billion, while the deficit in the second quarter of this year was SR109.2 billion though oil prices were much lower at historical lows. 

Saudi Arabia has achieved the highest non-oil quarterly revenues on record since the beginning of the announcement of the first quarterly budget of the Kingdom.

This was successfully accomplished not only due to low oil prices and the increase in VAT but as a result of the Saudi Vision 2030 structural reforms.

Saudi non-oil revenue has outstripped oil revenues on a quarterly basis. Oil revenues represented about 43 percent of total revenues in the third quarter of 2020 after they amounted to SR92.58 billion. In the third quarter 2019, non-oil revenue was SR131.84 billion.

Non-oil revenues accounted for about 57 percent of the total Saudi budget revenues during the third quarter of 2020 after they amounted SR122.99 billion. The non-oil income for the third quarter 2019 was SR75.36 billion.

It is worth comparing the third quarter 2019 to the third quarter 2020 in terms of oil prices levels. Though the Brent crude price average for the 2019 third quarter was about $62 per barrel, the Brent crude price average was about $43 per barrel in the third quarter 2020.

Low oil prices might also have contributed to Saudi non-oil revenue outstripping oil revenue on a quarterly basis.

Saudi Arabia’s Vision 2030 worked proactively in reducing non-oil revenues. During these times, it proved that Saudi Arabia’s strategies worked well even before reaching year 2030 in containing the impact of global pandemic and economic fragility.

Faisal Faeq

Also, there was an increase in VAT during the third quarter of this year (from July 2020). The value-added tax rose from 5 percent to 15 percent, adding revenue of about 14 billion within these three months.

Comparing the third quarter of 2019 to the third quarter of this year, non-oil revenues in the third quarter of 2020 jumped by 63 percent from SR75.36 billion last year in 2019 to SR122.99 billion in the third quarter of this year.

This has been successfully achieved through the continuation of the implementation of the initiatives and strategies implemented in the last period.

This reflects that Saudi Arabia’s strategy aimed at diversifying sources of income through “Vision 2030” is moving in the right direction, as oil before the implementation of the Vision constituted about 90 percent of the revenues.

The financial reforms that the Ministry of Finance began to implement to reduce the dependence of state revenues on oil and diversify the sources of revenues began to bear fruit  in light of the noticeable increase in the share of tax revenues in the total revenues.  

This indicates that public finance in the Kingdom is moving on the right path, which was praised by international financial institutions.

These figures illustrate that the Saudi economy was able to steadily confront and successfully contain the effects of the coronavirus pandemic.

Saudi Arabias’s package of early policies and measures paid off in absorbing a large part of the effects of the dual pandemic as a result of the strong plunge in oil prices amid the largest oil demand shock in history.

These factors affected large economies in general, in addition to doubling the impact on oil-exporting countries, including Saudi Arabia (the largest oil exporter in the world).

Saudi Arabia’s Vision 2030 worked proactively in reducing non-oil revenues. During these times, it proved that Saudi Arabia’s strategies worked well even before reaching year 2030 in containing the impact of global pandemic and economic fragility.

 

• Faisal Faeq is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco. Twitter:@faisalfaeq