Saudi Arabia's deficit down in third quarter as taxes boost revenue

DUBAI (Reuters) – Saudi Arabia posted a budget deficit of 40.768 billion riyals ($10.87 billion) in the third quarter this year, more than half its deficit in the previous quarter, as a spike in non-oil revenues offset a continued decline in oil income.

FILE PHOTO: Cars drive past the King Abdullah Financial District in Riyadh, Saudi Arabia December 18, 2018. REUTERS/Faisal Al Nasser/File Photo

The world’s largest oil exporter faces an economic contraction this year as the coronavirus crisis hits global demand for crude while virus containment measures weigh on non-oil economic sectors.

Still, despite a 30% yearly drop in oil revenues in the third quarter to 92.582 billion riyals, total revenues increased by 4% year-on-year to 215.577 billion riyals, partly thanks to tax increases.

Riyadh tripled a value-added tax to 15% in July to boost non-oil income, a move several economists said could weaken domestic demand and slow economic recovery.

“The increase in non-oil revenue was supported by the increase in VAT, which also benefited from pent-up consumer demand after the lockdowns as people could not travel outside of Saudi,” said Mazen al-Sudairi, head of research at Al Rajhi Capital.

Revenue from taxes was significantly higher in the three months to the end of September, according to the quarterly budget performance report published by the ministry of finance. Overall non-oil revenues jumped by 63% year-on-year.

Government spending was up 7% on an annual basis to 256.345 billion riyals. Subsidies accounted for the biggest increase, rising to 8.189 billion riyals from 2.602 billion riyals in the same period a year earlier, reflecting fiscal support during the crisis.

The Saudi economy, the largest in the Arab world, is expected to shrink by 3.8% this year, the government has estimated.

Riyadh plans to cut spending next year to 990 billion riyals but expects the economy to return to growth as its management of the coronavirus crisis improves, a preliminary budget statement showed last month.

($1 = 3.7503 riyals)

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