The Saudi budget deficit for 2020 increased from $ 50 billion, as the Kingdom had expected a year ago, to more than $ 79 billion by the end of the year, according to the government announced Tuesday, against the backdrop of the emerging Corona virus crisis and the decline in oil prices.

However, the Saudi Ministry of Finance expected that this deficit would more than halve by the end of next year, despite its admission that it was "difficult to predict the time required for recovery", after it reduced expenditures in the 2021 budget compared to 2020 expenditures.

The kingdom - the world's largest oil exporter - is trying to diversify its economy, which has been hit hard by low crude prices, which secure more than two-thirds of revenues, closures and fears associated with the emerging coronavirus.

In its report on the budget for next year, the Ministry of Finance stated that it expects "the budget deficit to rise by the end of 2020 to about 298 billion riyals (about $ 79 billion)," after it was expected to reach 50 billion dollars before the virus spread.

It is noteworthy that the deficit in 2019 amounted to about 35 billion dollars.

Decreased expenses

Expected expenditures in next year's budget are 990 billion riyals (about 264 billion dollars), compared to actual expenditures of 1068 billion riyals (about 284.8 billion dollars) in 2020, which is about 7% down from this year, at a time when Riyadh seeks to curb the huge deficit caused On falling oil revenues and increasing spending to confront the Coronavirus crisis.

The expected revenues for the new year are 849 billion riyals (about 226.4 billion dollars), compared to 770 billion riyals (205 billion dollars) in 2020.

The Kingdom expects the economy to contract by 3.7% this year, with the shift to 3.2% growth next year, while the International Monetary Fund expects the Kingdom's economy to shrink by about 5.4% in 2020.

Retreat of precautions

Since 2014, the kingdom's budgets have been witnessing a continuous deficit of more than 400 billion dollars, which prompted it to borrow and resort to spending from its reserves, which decreased from $ 125 billion in 2019 to $ 92 billion in 2020, while it is expected to decrease to $ 74.6 billion in 2021.

Saudi Finance Minister Muhammad Al-Jadaan said that the transfer of $ 40 billion this year from the Saudi Central Bank to the Public Investment Fund to support its investments was "a very exceptional transfer in a very exceptional year," adding that there are no plans at the present time to make other transfers of this kind.

Al-Jadaan added that there are no current plans to raise taxes, and when asked about imposing an income tax, he said that the matter is not on the table.

Saudi Arabia expects to increase the public debt to 937 billion riyals next year from 854 billion riyals this year.

Saudi Arabia needs a crude price of $ 80 a barrel to achieve a financial balance in its budget (Reuters)

Oil prices and Aramco dividends

Saudi Arabia tripled the value-added tax last July, to 15% to support state coffers and offset the drop in oil revenues.

The world's largest oil exporter reduced oil production this year as part of an agreement with OPEC and other producers to stabilize oil prices, which reached less than $ 16 a barrel last April, at the lowest level in 21 years.

The Ministry of Finance said in a statement, "With the continuing state of uncertainty about the speed of the global economic recovery and the possibility of continuing the repercussions of the crisis for a longer period of time, this means that it is difficult to predict the future of oil markets."

Economists say that Saudi Arabia needs a crude price of about $ 80 a barrel to achieve a balance in its budget, which is much higher than the current price of about $ 50.

Mazen Al-Sudairy, head of the research department at Al-Rajhi Capital, said that it is difficult to forecast government revenues from oil "because it includes the additional variable related to the dividends that Aramco (ARAMCO) will pay to the government."

Saudi oil giant Aramco says it will pay a total of $ 75 billion in dividends this year, the vast majority of which will go to the government.

Saudi Arabia also expects to receive distributions of up to 25 billion riyals ($ 6.7 billion) this year from its sovereign wealth fund, the Public Investment Fund, as a one-time measure aimed at supporting finances affected by falling oil prices.

After announcing the Saudi budget for 2021, the Saudi Finance Minister told Reuters on Tuesday, "We have requested part of the dividend, so we are likely to receive about 15 to 25 billion Saudi riyals in dividends from the Public Investment Fund."