Saudi Arabia to report fiscal deficits in 2023 and 2024 says IMF

• Deficit is 1.2% of GDP in 2023
• Non-oil growth remains ‘robust’
• Vision 2030 spending reaches $1.25tr

Saudi Arabia, the world’s largest oil exporter, is forecast to report a fiscal deficit of 1.2 percent of GDP in 2023, from a surplus of 2.5 percent in 2022, the International Monetary Fund (IMF) said in its latest report.

The fiscal deficit is projected to rise further to 1.6 percent of GDP next year.

Riyadh indicated a second consecutive budget surplus for this year last December, though down 84 percent from 2022, as an uncertain global economic outlook and lower crude prices look set to weigh on its revenues.

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Saudi Arabia will extend its voluntary oil production cut of one million barrels per day (bpd) until the end of 2023, the state-run Saudi Press Agency reported on Tuesday.

The cut, which took effect from July, will see output for October, November, and December capped at nearly nine million bpd.

The IMF said the kingdom’s GDP growth is expected to slow to 1.9 percent, down from 8.7 percent in 2022. The non-oil GDP growth is forecast at 4.9 percent this year and 4.4 percent in 2024.

“Non-oil growth will remain as robust because this is driven by domestic demand and overall growth will be revised down to reflect the cut in oil production, but that growth will still remain positive,” Amine Mati, the IMF’s mission head for Saudi Arabia, told Reuters.

However, the report said that risks to the outlook are “balanced” due to higher oil prices. Expectations of strong oil demand for the rest of the year persist and changes in Opec+ oil production cuts are possible. Accelerated structural reforms and increased investment are likely to spur growth.

“Saudi Arabia would be very content with prices around $100 and that probably looks like where we’re heading,” Bill Farren-Price, senior researcher at Oxford Institute For Energy Studies, told AGBI.

The kingdom needs higher oil prices to fund its portfolio of giga-projects. The total value of real estate and infrastructure schemes launched, but yet to be delivered, since the launch of the Vision 2030 plan in 2016 has crossed the $1.25 trillion mark, according to data published this week by global real estate consultancy Knight Frank.

“The whole economic strategy is based on huge investment levels into the non-oil economy and they need to get that money from somewhere. The strategy makes perfect sense and I expect it to continue like this,” Farren-Price added.

According to the IMF, the Saudi banking system remains positive, with the aggregate capital adequacy ratio remaining strong. Profitability remains high and above pre-pandemic levels due to higher net interest margins.

Although mortgage growth has recently moderated, demand for project-related and consumer loans remains robust, helping offset the impact on profitability from rising funding costs due to higher interest rates.