SAUDI ARABIA: Budget assumes oil around $75 and shows spending discipline in some key areas

GULF COUNTRIES - In Brief 07 Dec 2022 by Justin Alexander

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The budget was released this evening (MoF), which largely reflects the headline figures from the pre-budget statement and anticipates a surplus of 0.4% of GDP, down from the estimated 2.6% this year. We will include more analysis in the weekly report on Friday and all the data will be added to the Databank. For the time being the key takeaways are: Assuming non-oil non-tax revenue is flat y/y and oil production holds at 10.5m b/d, the current OPEC+ quota (as the energy minister has indicated is his base assumption for the whole of 2023) then the budget seems to assume an oil price of around $75.Taxes on goods and services is budgeted to increase by 4% which is close to the implied non-oil growth rate and is consistent with VAT remaining at 15% - the minister of finance has insisted no reduction is planned, but if and when that were to happen it would likely come as an executive order from MBS not part of the budget cycle and so can't be entirely ruled out for 2023.Although spending for 2023 is 18% higher than was projected in last year's budget, that was never a very realistic level (it was set way back in 2019) and cuts are being made in several areas relative to the 2022 estimated outturn. The only areas where spending is higher than in 2019 are interest, which is understandable given higher interest rates; wages, although they are only up by 1.6% y/y and a similar amount above 2019 (as they dipped in 2020); and goods and services, which is being reduced by -8% vs 2022 but is still concerning as it will remain about 35% above the 2019 level and represent a fifth of total expenditure. The reduction in subsidies and benefits is welcome and although capex will rise by 4...