Strategy Note /
Saudi Arabia

Saudi 2020 Fiscal Budget: Spending efficiency and enabling private sector

    Iyad Khalid Ghulam
    Iyad Khalid Ghulam

    Head of Equity Research

    SNB Capital
    17 December 2019
    Published bySNB Capital

    The second highest Saudi budget on record was announced for 2020f, along with the fiscal and macroeconomic performance for 2019. The fiscal deficit for 2019 is expected to decline to SAR131bn (4.7% of GDP), in line with the projection announced in the 2019 budget. Real GDP growth estimates have been revised lower for 2019 to 0.4% from 2.3%, despite the growth in non-oil sectors. However, GDP growth is expected to improve in 2020f, reaching 2.3% supported by the progress in Vision Rationalization Programs (VRPs) and growth of the private sector. 

    The 2020 budget is largely consistent with the previous budget with an emphasis on the implementation of VRPs. The government continues to focus on achieving higher sustainable economic growth, supported by the private and non-oil sectors. Efficiency of spending while improving the quality of public services are key goals of the budget.

    The Saudi Budget for 2020f is broadly in-line with the 2019 budget. Revenues are projected to decline by 9.2% yoy to SAR833bn, mainly due to lower income from the oil sector, which was supported by one-gains from oil, telecom and banks sectors. Despite this, total expenditure is expected to reach SAR1.02trn, broadly-in-line with 2019. As a result, the deficit is expected to reach SAR187bn (6.4% of GDP) in 2020f from SAR131bn (4.7% of GDP) in 2019 and SAR173bn (5.9% of GDP) in 2018.

    According to our estimates, the implicit oil price is US$57-60 while the break-even oil price is cUS$80.

    Real GDP is projected to grow 0.4% in 2019e vs 2.3% in 2018 due to a lower contribution from the oil sector which mitigated the strong growth of non-oil GDP. Supported by the non-oil sector, Saudi GDP is expected to grow by 2.3% yoy in 2020f with similar growth trends to be maintained over the medium term.

    Total debt is estimated to reach SAR754bn, reflecting a debt to GDP ratio of 26.0%, compared to SAR678bn in 2019 (Debt to GDP of 24.1%). Reserves are expected to decline to SAR346bn in 2020f from SAR467bn in 2019. The additional debt and reserves will be used to finance the fiscal deficit.