Saudi Arabia has revised its forecast for this year’s budget deficit to 2.7% of GDP from 4.9% and is aiming for a further cut next year, its preliminary 2022 budget statement said, highlighting the government’s tight grip on finances despite projected higher crude revenues. The largest Arab economy suffered a deep recession last year as the coronavirus crisis hurt its burgeoning non-oil economic sectors, while record-low oil prices weighed on state coffers, widening the 2020 budget deficit to 11.2% of GDP. The improvement in the country’s finances this year was driven by a jump in revenues, from a budgeted 849 billion riyals to a revised estimate of 930 billion riyals, as oil production increased and crude prices rebounded. The budget document did not provide a breakdown for oil revenues, but Al Rajhi Capital estimated these could reach 545 billion riyals this year. Saudi Arabia now plans to reduce its deficit to 1.6% of GDP in 2022 and this would switch to a 0.8% surplus in 2023, based on its budget projections. “The key message to us is a continued focus on expenditure restraint to stabilise the fiscal position”, said Monica Malik, chief economist at Abu Dhabi Commercial Bank. Saudi Arabia’s earlier forecast for a budget deficit of 4.9% of GDP this year had been based on an oil price assumption that economists had estimated at around $46-$48 per barrel. Brent crude oil has been climbing this year and is expected to average about $68 per barrel for 2021, based on the Energy Information Administration. “The Pre-Budget Statement projects that the gradual return to the recovery of the Kingdom’s economy will lead to positive developments on the revenues for the year 2022 and over the medium-term”, the Ministry of Finance said in a statement. PIF-LED GROWTH Riyadh forecasts economic growth of 2.6% this year and 7.5% in 2022, the budget statement said, after a 4.1% contraction in 2020. Economic growth projections for 2022 were based on expectations of increased oil production starting in May next year as part of an OPEC+ agreement, global demand recovery and improvements in global supply chains. Spending will be cut even though revenues will hold steady. In 2021, total revenues are forecast to jump 19% on an annual basis, while total spending will drop by around 6%, the budget document said. The ministry said that was partly due to improved spending efficiency and to the higher participation of the private sector in leading new investments, as well as the Public Investment Fund (PIF), Saudi Arabia’s main sovereign wealth fund. The fund - which plans to inject 150 billion riyals into the national economy each year until 2025 - is at the core of Crown Prince Mohammed bin Salman’s plans to diversify the economy. In terms of borrowing, the government expects total debt to increase next year to 989 billion riyals from an estimated 937 billion riyals this year. That would be a minor increase to 31.3% of debt-to-GDP from 30.2% this year. The ratio remains “reasonable compared to advanced economies and the emerging and middle income countries’ debt levels,” Al Rajhi Capital said. ($1 = 0.2666 riyals)