Saudi Arabia’s shift from budget balancing to fiscal sustainability: non-oil revenues see 53% growth

The share of oil revenues, previously the main component of Saudi Arabia’s income, declined from 76 percent in the third quarter of 2022 to 57 percent in the same period of this year. (SPA)
The share of oil revenues, previously the main component of Saudi Arabia’s income, declined from 76 percent in the third quarter of 2022 to 57 percent in the same period of this year. (SPA)
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Updated 04 November 2023
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Saudi Arabia’s shift from budget balancing to fiscal sustainability: non-oil revenues see 53% growth

 Saudi Arabia’s shift from budget balancing to fiscal sustainability: non-oil revenues see 53% growth
  • Non-oil revenues surged by 53 percent in the third quarter compared to the same quarter last year
  • I believe that the budget for Q3 2023 reflects the economic and financial reforms that the Kingdom has adapted since the launch of its Vision 2030 in 2016. Talat Zaki Hafez Economic columnist and banking expert

RIYADH: Saudi Arabia’s total revenues amounted to SR258.54 billion ($68.92 billion) in the third quarter of 2023, the Ministry of Finance said in its quarterly budget performance report on Wednesday.

Data released by the ministry indicates that non-oil revenues surged by 53 percent in the three months to the end of September compared to the same quarter last year, reaching a total of SR111.53 billion.

Non-oil revenues accounted for 43 percent of the Kingdom’s total revenues over the period, marking a significant increase from the 24 percent recorded in the same timeframe the previous year.




Talat Zaki Hafez, Economic columnist and banking expert

“I believe that the budget for Q3 2023 reflects the economic and financial reforms that the Kingdom has adapted since the launch of its Vision 2030 in 2016,” Talat Zaki Hafez, economic columnist and banking expert said.

Hafez explained that the significant growth in non-oil revenues is one of the objectives that the Kingdom’s Vision 2030 sought to accomplish.

The share of oil revenues, previously the main component of Saudi Arabia’s income, declined from 76 percent in the third quarter of 2022 to 57 percent in the same period of this year.

I believe that the budget for Q3 2023 reflects the economic and financial reforms that the Kingdom has adapted since the launch of its Vision 2030 in 2016.

Talat Zaki Hafez, Economic columnist and banking expert

“One of the issues that has affected the oil revenue is the Kingdom’s voluntary reduction of oil production. It started with 500,000 bpd (barrels per day: and moved up to another 1 million since July which is a total reduction of 1.5 million bpd,” Hafez said.

Vision 2030 aimed to pivot towards non-oil activities due to the volatility of crude prices. Relying predominantly on oil revenues left the Saudi economy vulnerable to the unpredictable swings in global markets.

This strategic shift is set to enhance economic stability, create new opportunities for growth, and secure a more sustainable financial future for Saudi Arabia.

Conversely, total expenditures in the third quarter of 2023 rose by 2 percent compared to the same period of the previous year, reaching SR294.32 billion. The resulting budget deficit for this period amounted to SR35.77 billion.

FASTFACT

Data released by the Ministry of Finance indicates that non-oil revenues surged by 53 percent in the three months to the end of September compared to the same quarter last year, reaching a total of SR111.53 billion.

Hafez explained: “The increase in expenses coupled with the significant decrease in oil revenues has reflected on the overall deficit that was shown in Q3 of 2023.

“That’s an issue? No that is is not an issue as long as the objective of the Vision 2030, in its economic and financial reforms, is to focus on two things: To grow the non-oil revenues, and that’s an important fact, and also to guarantee that you have financial sustainability regardless whether the budget shows a surplus or deficit.”

Taxes on goods and services emerged as the primary contributor to non-oil revenues, comprising 63 percent of the total and reaching SR70.26 billion in the three months to the end of September.

This category displayed remarkable growth, surging by 57 percent from SR44.9 billion in the same period of 2022.

Meanwhile, taxes on income, profits, and capital gains experienced the most significant growth among non-oil revenue streams, with a remarkable surge of 148 percent compared to the same quarter last year, amounting to SR8.2 billion.

Although this category represents a small portion of total non-oil revenues, accounting for 7 percent, it has shown significant progress from 5 percent in the equivalent quarter of 2022 when it amounted to SR3.32 billion.

On the expenditure front, employee compensation accounted for the largest portion of expenditures, representing 44 percent and reaching a total of SR130.6 billion. This marks a 3 percent increase from the third quarter of 2022.

Although comprising a smaller portion of the Kingdom's total expenditures, it's noteworthy that total grants experienced a substantial leap of 336 percent during this period, amounting to SR4.04 billion.

Analyzing the allocation of expenditures by sector for the three months to the end of September, the military sector accounted for 21 percent of the total expenditures, amounting to SR62.29 billion. This marks a 15 percent increase compared to the same period of the previous year.

The health and social development sector represented 20 percent of the expenditures, with a total of SR57.44 billion.

It's noteworthy to mention that this particular category has already utilized 98 percent of the year's allocations, reaching SR185 billion within the initial 9 months of this year. This sector was initially budgeted for SR189.34 billion for the fiscal year 2023.

“The beauty is that the Kingdom is still spending on education, health and all of the social related protection programs that have witnessed growth during this period, like the Citizen Account Program and the Social Security System,” said Hafez.

The Citizen Account Program was established to protect Saudi families from the expected direct and indirect impact of various economic reforms, which may cause additional burden on some segments of society.

Hafez explained that the primary goal is not solely to conclude any financial period, whether it's on a quarterly, semi-annual, or annual basis, with either a deficit or surplus. “While surpluses are certainly welcomed, they are not the primary objective,” he said.

The economist added that the Kingdom’s objective has transitioned from simply balancing the budget. Back in 2016, with the inception of Vision 2030, the focus was shifted towards achieving financial sustainability where the government can consistently fulfill its financial commitments without interruption, irrespective of the fluctuating oil prices.

“The General Authority of Statistics has issued their GDP (gross domestic product) flash estimate for Q3 and it has clearly indicated that non-oil activity has increased by 3.6 percent and the government activity has increased by 1.9 percent on an annual basis,” Hafez said.

Total revenues for the initial 9 months of 2023 reached SR854.31 billion, accounting for 75.6 percent of the approved budget for fiscal year 2023.

During this period, non-oil revenues surged by 22 percent, totaling SR348.96 billion, and constituting 41 percent of the total revenues for this timeframe.

In contrast, oil revenues witnessed a 24 percent decrease, amounting to SR505.35 billion in the first 9 months of the year. Their percentage share declined from 70 percent in the same period last year to 59 percent by the end of the third quarter of 2023.

Expenditures in the initial three quarters of the year reached 81 percent of the allocated budget for fiscal year 2023, totaling SR898.26 billion during this period. Consequently, this led to a government deficit of SR43.95 billion within the same timeframe.

Total public debt stood at SR994.26 billion by the end of September, with SR628.6 billion categorized as domestic debt, while the remaining SR365.62 billion is classified as external debt.

Hafez said: “The public debt is less than 25 percent of GDP, which is one of the lowest if compared to advanced economies or G20 countries, and also the public debt is covered by ample, with government reserves standing at more than SR407 billion by Q3 2023,”

He added: “It means we have enough liquidity to cover our public debt, bearing in mind that the public debt is mostly domestic debt.”

 

 


Oil extends gains on reports Iran preparing to strike at Israel

Oil extends gains on reports Iran preparing to strike at Israel
Updated 1 min ago
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Oil extends gains on reports Iran preparing to strike at Israel

Oil extends gains on reports Iran preparing to strike at Israel
  • Israeli intelligence suggest Iran is preparing to attack Israel from Iraqi territory in the coming days, possibly before the US presidential election on Nov. 5

SINGAPORE: Oil prices extended gains in early Asian trade on Friday, following reports that Iran was preparing a retaliatory strike on Israel from Iraqi territory in the coming days.
US West Texas Intermediate crude futures rose $1.24, or 1.8 percent, to $70.50 a barrel by 2229 GMT after settling up 0.95 percent in the previous session.
Brent crude, which will roll to the January contract, has yet to start trading. The December contract which expired on Thursday closed 0.85 percent higher at $73.17.
Israeli intelligence suggests Iran is preparing to attack Israel from Iraqi territory in the coming days, possibly before the US presidential election on Nov. 5, Axios reported on Thursday, citing two unidentified Israeli sources.
The attack is expected to be carried out from Iraq using a large number of drones and ballistic missiles, the Axios report added. The report said that carrying out the attack through pro-Iran militias in Iraq could be an attempt by Tehran to avoid another Israeli attack against strategic targets in Iran.
Oil prices were also supported by expectations that OPEC+ could delay December’s planned increase to oil production by a month or more, four sources close to the matter told Reuters on Wednesday, citing concern about soft oil demand and rising supply.


Red Sea Global secures $1.5bn for AMAALA infrastructure project

Red Sea Global secures $1.5bn for AMAALA infrastructure project
Updated 31 October 2024
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Red Sea Global secures $1.5bn for AMAALA infrastructure project

Red Sea Global secures $1.5bn for AMAALA infrastructure project

JEDDAH: Red Sea Global has announced the financial closing of a multi-utility infrastructure development project for the AMAALA destination, totaling around $1.5 billion.

The initiative, led by a consortium including Electricite de France or the EDF Group and Abu Dhabi Future Energy Co., or Masdar, alongside their partners Korea East-West Power Co., or EWP, and SUEZ, is set to position AMAALA as a luxury wellness destination on the Red Sea coast of Saudi Arabia. It is expected to welcome its first guests in 2025.

The financial close was achieved with the support of local and international financial institutions, including First Abu Dhabi Bank, Emirates NBD, and Riyad Bank, as well as Saudi National Bank and Alinma Bank, according to a statement from RSG, adding that the milestone highlights the consortium’s dedication to realizing AMAALA’s promise of unparalleled luxury, sustainability, and cultural enrichment.

Group CEO of RSG, John Pagano, said that they have demonstrated that large-scale tourism destinations can be powered using 100 percent renewable energy while providing luxury experiences for guests and strong financial returns for partners.

“This agreement with EDF, Masdar, EWP, and SUEZ means that we are on track to making AMAALA our second destination powered by sunlight, day and night.”

This achievement comes after the awarding of a 25-year multi-utility concession agreement with RSG in September 2023, which includes an option for extension. The deal encompasses the financing, engineering, and development, as well as construction, operation, maintenance, and eventual transfer of a multi-utilities infrastructure facility to support the AMAALA destination, RSG clarified.

The facility includes a fully optimized and decarbonized off-grid renewable energy system designed to generate electricity from a 250-megawatt solar photovoltaic park, 700MWh battery energy storage, and transmission and distribution lines. Additionally, it features a desalination plant with a capacity of 37 million liters of drinking water per day and wastewater treatment plants to secure the necessary base load.

The project is expected to prevent nearly 350,000 tonnes of CO2e emissions annually compared to typical infrastructures of this nature. It will also serve as a pioneering infrastructure initiative, ushering in a new era of eco-friendly luxury tourism.

Masdar CEO Mohamed Jameel Al-Ramahi highlighted the project’s innovative solutions, including solar power, energy storage, and desalination systems.

Beatrice Buffon, vice president, international division, and chairwoman and CEO of EDF Renewables, described the financial close as a significant achievement enabled by RSG’s support and the dedication of their team and partners.

She added that this initiative sets new standards for the EDF Group and should be replicable in other geographies. She also highlighted that the off-grid project will supply 65,000 people with carbon-free electricity and uninterrupted water access.

Commenting on the announcement, Kim Young-Moon, CEO of EWP said: “We are excited to announce the financial close of our renewable energy project in Saudi Arabia, a significant step in our commitment to a sustainable future.”

Young-Moon added that the project will reduce carbon emissions, improve air quality, and create jobs, boosting local economic growth.

“As we aim to lead the global energy transition, this project is a key milestone, driving innovation in the renewable energy sector and advancing our ambitious goals,” the executive said.

Pierre Pauliac, chief operating officer and executive vice president at SUEZ, said: “We are delighted to contribute to this strategic project for the development of Saudi Arabia. SUEZ will be part of the construction of all the water utilities equipment. In addition, the group will operate during the 25 years the state-of-the-art desalination plant to secure AMALAA’s access to drinking water, as well as the water networks.”

AMAALA will go beyond sustainability to have a regenerative impact on the environment. By 2040, the project plans to achieve a 30 percent net conservation benefit for local ecosystems. 

This will be accomplished by enhancing biologically diverse habitats such as mangroves, seagrass, corals, and land vegetation, promoting biodiversity while contributing to carbon sequestration, according to the statement.

Upon completion, the luxury destination will feature over 4,000 hotel rooms across 30 hotels, and 1,200 high-end residential villas, apartments, and estate homes. It will also host a vibrant community of more than 15,000 residents and workers, creating a dynamic and sustainable living environment.


Saudi-US bilateral accords ‘not that connected’ to Israel normalization

Saudi-US bilateral accords ‘not that connected’ to Israel normalization
Updated 31 October 2024
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Saudi-US bilateral accords ‘not that connected’ to Israel normalization

Saudi-US bilateral accords ‘not that connected’ to Israel normalization
  • Saudi FM rejects possibility of Kingdom recognizing Israel without establishment of Palestinian state
  • Region's security as a whole is at risk if we do not address the rights of Palestinians, says Saudi FM

RIYADH: Saudi Arabia’s foreign minister said on Thursday that some of the bilateral agreements the kingdom has been negotiating with Washington are “not that tied” to the normalization of Saudi relations with Israel and are “moving ahead.”

He noted that potential US-Saudi agreements on trade and artificial intelligence are “not tied to any third parties” and “can progress probably quite quickly.”

“Some of the more significant defense cooperation agreements are much more complicated. We would certainly welcome the opportunity to finalize them before the end of the Biden administration's term, but that’s reliant on factors outside of our control,” he said.

“The other work streams are not that connected, and some of them are progressing quite quickly, and we hope to see movement forward.”

Ruling out the possibility of Saudi Arabia recognizing Israel without the establishment of a Palestinian state, Prince Faisal stated that this remains the only viable solution, regardless of Israel’s acceptance.

Speaking at the Future Investment Initiative summit in Riyadh, he emphasized that the creation of a Palestinian state is rooted in international law and UN resolutions.

“In reality, the establishment of a Palestinian state is not tied to whether or not Israel accepts it; it’s tied to the principles of international law,” he said. “The UN resolutions that led to the establishment of the state of Israel clearly envisioned a Palestinian state as well, so we need to make that happen.”

Prince Faisal asserted that normalization of Saudi-Israeli ties is “off the table” until there is a resolution regarding Palestinian statehood. He further highlighted the broader implications, stating, “The security of the region as a whole is at risk if we do not address the rights of the Palestinians.”

Addressing the ongoing crisis in Gaza, he called for a cease-fire, emphasizing the dangers of an Israeli overreaction following the events of October 7th. “We have seen the reality that Israel’s reaction and its continuing military assault have led to a humanitarian catastrophe,” he remarked. He described the situation in northern Gaza as dire, with blockades and no safe zones for civilians, stating, “That can only be described as a form of genocide. It is certainly against humanitarian law, and that is feeding a continuing cycle of violence.”

On the prospects of an immediate cease-fire, Prince Faisal expressed caution, saying, “I hope it’s the case that we can see a cease-fire in the immediate hours, in the immediate short term. I’m not sure that that’s the case. I don’t have the details.”

He acknowledged US efforts to facilitate negotiations, adding, “We are not part of the direct negotiations, but we certainly support the efforts that the US has undertaken to find a pathway to a ceasefire. I hope it comes to fruition.”

He noted that previous attempts at cease-fire negotiations had failed due to new demands from Israel. “In most of those instances where the talks collapsed, it has been because new requirements or demands were added on the part of Israel,” he explained.

Prince Faisal also addressed Saudi Arabia’s position on Lebanon, emphasizing a hands-off approach. “We have never fully disengaged. But we believe it’s up to the Lebanese politicians to seek a direction that puts Lebanon on the right track,” he stated.

He added: “It’s not up to any outside influence, any outside countries, or any outside powers to tell the Lebanese what to do or to influence the political process in Lebanon. That is our opinion.”

Regarding relations with Iran, Prince Faisal indicated that recent discussions focused on regional de-escalation. “I hope that Iran, like us, is working toward regional de-escalation on all fronts, not just in Lebanon. That’s very much the focus of my conversations with my Iranian counterpart,” he said. While he could not be “confident of anything that is in the control of other parties,” he emphasized the importance of avoiding further escalation.

“I have made it clear to our Iranian counterparts that it is important to avoid any further escalation. My sense is that they realize the risks of escalation and would prefer to avoid it. But, of course, they have their own strategic calculations.”


‘Blue tech’ needs private sector boost, says RSG official

‘Blue tech’ needs private sector boost, says RSG official
Updated 31 October 2024
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‘Blue tech’ needs private sector boost, says RSG official

‘Blue tech’ needs private sector boost, says RSG official

RIYADH: Private sector firms need to lead the way and invest in so-called blue tech in order to protect the world’s oceans, according to a leading official at Red Sea Global.

Speaking to Arab News during the Future Investment Initiative in Riyadh, Raed Al-Basseet, environment and sustainability officer at the company, called on businesses to adopt innovative approaches that contribute to environmental preservation. 

This includes blue tech — which refers to refers to any innovation made for the sea.

Al-Basseet also reaffirmed RSG’s commitment to sustainability — and how this reflects on the project’s return on investment. 

He called on the private sector to take “the first steps” and invest in “cutting edge approaches to preserving the environment,” adding: “Enhancing the environment and … conservation is the right thing to do for the private sector, but also when we realize the first benefits out of that, and out of these initiatives, we will also have real return on investment as a developer, as a private sector, from that investment.” 

Al-Basseet was keen to emphasis RSG’s focus on environmentalism, saying the company has “sustainability at its DNA.”

He added: “And that actually, from a practical sense, means that (in) all of our activities, master planning and development, design, construction, delivering on these projects, as well as operating these projects, sustainability is at the core of everything that we do.” 

He emphasized that the long-term success of the projects relies on preserving natural assets, making sustainability integral to achieving favorable outcomes. 

Highlighting key initiatives, Al-Basseet pointed out the company’s significant investment in blue tech, adding: “The investment in technology does require the support of a multitude of stakeholders. Private sector does have a role. Red Sea Global is very proud that they have in the 

Al-Basseet also spoke about the company’s efforts in coral conservation, including supporting research that is happening now within the Red Sea.


Saudi-US bilateral accords ‘not that connected’ to Israel normalization

Saudi-US bilateral accords ‘not that connected’ to Israel normalization
Updated 01 November 2024
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Saudi-US bilateral accords ‘not that connected’ to Israel normalization

Saudi-US bilateral accords ‘not that connected’ to Israel normalization
  • Noted potential US-Saudi agreements on trade and AI ‘not tied to any third parties’
  • Prince Faisal asserted normalization of Saudi-Israeli ties ‘off the table’ until there is a Palestinian state

RIYADH: Saudi Arabia’s foreign minister said on Thursday that some of the bilateral agreements the kingdom has been negotiating with Washington are “not that tied” to the normalization of Saudi relations with Israel and are “moving ahead.”

He noted that potential US-Saudi agreements on trade and artificial intelligence are “not tied to any third parties” and “can progress probably quite quickly.”

“Some of the more significant defense cooperation agreements are much more complicated. We would certainly welcome the opportunity to finalize them before the end of the Biden administration's term, but that’s reliant on factors outside of our control,” he said.

“The other work streams are not that connected, and some of them are progressing quite quickly, and we hope to see movement forward.”

Ruling out the possibility of Saudi Arabia recognizing Israel without the establishment of a Palestinian state, Prince Faisal stated that this remains the only viable solution, regardless of Israel’s acceptance.

 

Speaking at the Future Investment Initiative summit in Riyadh, he emphasized that the creation of a Palestinian state is rooted in international law and UN resolutions.

“In reality, the establishment of a Palestinian state is not tied to whether or not Israel accepts it; it’s tied to the principles of international law,” he said. “The UN resolutions that led to the establishment of the state of Israel clearly envisioned a Palestinian state as well, so we need to make that happen.”

Prince Faisal asserted that normalization of Saudi-Israeli ties is “off the table” until there is a resolution regarding Palestinian statehood. He further highlighted the broader implications, stating, “The security of the region as a whole is at risk if we do not address the rights of the Palestinians.”

Addressing the ongoing crisis in Gaza, he called for a cease-fire, emphasizing the dangers of an Israeli overreaction following the events of October 7th. “We have seen the reality that Israel’s reaction and its continuing military assault have led to a humanitarian catastrophe,” he remarked. He described the situation in northern Gaza as dire, with blockades and no safe zones for civilians, stating, “That can only be described as a form of genocide. It is certainly against humanitarian law, and that is feeding a continuing cycle of violence.”

On the prospects of an immediate cease-fire, Prince Faisal expressed caution, saying, “I hope it’s the case that we can see a cease-fire in the immediate hours, in the immediate short term. I’m not sure that that’s the case. I don’t have the details.”

He acknowledged US efforts to facilitate negotiations, adding, “We are not part of the direct negotiations, but we certainly support the efforts that the US has undertaken to find a pathway to a ceasefire. I hope it comes to fruition.”

He noted that previous attempts at cease-fire negotiations had failed due to new demands from Israel. “In most of those instances where the talks collapsed, it has been because new requirements or demands were added on the part of Israel,” he explained.

Prince Faisal also addressed Saudi Arabia’s position on Lebanon, emphasizing a hands-off approach. “We have never fully disengaged. But we believe it’s up to the Lebanese politicians to seek a direction that puts Lebanon on the right track,” he stated.

He added: “It’s not up to any outside influence, any outside countries, or any outside powers to tell the Lebanese what to do or to influence the political process in Lebanon. That is our opinion.”

Regarding relations with Iran, Prince Faisal indicated that recent discussions focused on regional de-escalation. “I hope that Iran, like us, is working toward regional de-escalation on all fronts, not just in Lebanon. That’s very much the focus of my conversations with my Iranian counterpart,” he said. While he could not be “confident of anything that is in the control of other parties,” he emphasized the importance of avoiding further escalation.

“I have made it clear to our Iranian counterparts that it is important to avoid any further escalation. My sense is that they realize the risks of escalation and would prefer to avoid it. But, of course, they have their own strategic calculations.”