Saudi Arabia’s trillion-riyal budget keeps reforms on track

The Kingdom’s 2024 fiscal plans show the progress made in its move away from dependency on oil revenue and the wider ambitions of Vision 2030

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Saudi Arabia’s trillion-riyal budget keeps reforms on track

Faisal Faeq

last update on 11 Dec 2023

Saudi Arabia's budget for 2024 is the Kingdom’s fourth trillion-riyal fiscal plan, and it comes despite a 20% year-on-year drop in oil prices and a 17% fall in production.

Revenue for the general budget for 2024 is at 1.172tn riyals, or $312.5bn. Expenditure is set at 1.251tn riyals, or $333.6bn, creating a deficit of 79 billion riyals, or $21bn.

His Excellency the Saudi Minister of Finance, Mohammed Al-Jadaan, points out that a budget deficit is not a cause for concern as long as it is allocated to productive expenditure.

Saudi deficits from 2023 to 2027 are due to increased spending on strategies and projects that will spur economic growth. One of the key features of the Saudi budget is economic diversification, the move away from dependency on oil revenues.

The 2024 budget is a significant part of the Saudi Vision 2030 reforms. It clearly demonstrates that the Kingdom of Saudi Arabia has already moved beyond total dependence on oil revenues. This progress is evident in the budget, with expenditures increasing every year until 2026.

It is accompanied by ongoing efforts to enhance the efficiency and effectiveness of spending, financial control, public financial sustainability, and the implementation of economic and financial reforms to achieve the goals of Vision 2030.

Oil price fluctuations, which previously had a significant impact on the budget, have become less influential due to the rise in non-oil income.

Therefore, a reduction in Saudi oil production will not substantially impact the budget, which also follows a conservative pricing scenario, meaning the Kingdom is not just dependent on moves on the international oil markets for its national financial planning.

SPA — The Saudi Ministerial Council meets to approve the budget in Riyadh on December 6, 2023.

Even if oil prices were to fall to lower levels than those seen this year, the Kingdom will remain capable of managing its budget. Non-oil revenues reached about 441bn riyals, or $117.6bn, in 2023, compared to about 411bn riyals, or $109.6bn, in 2022, an increase of 30bn riyals and a growth rate of 7.3%. It marks the seventh consecutive annual increase since the launch of Saudi Vision 2030.

The 2024 budget is a significant part of the Saudi Vision 2030 reforms. It clearly demonstrates that the Kingdom of Saudi Arabia has already moved beyond total dependence on oil revenues.

Budget plans for $40 a barrel oil

Prudent financial management means the Kingdom makes conservative forecasts on oil prices to ensure it can cope with a wide range of market scenarios. This makes the budget capable of remaining sustainable even during spells of volatility on commodity exchanges.

No official oil price estimate is announced within the budget, but a baseline is likely to have been set at $40 a barrel on the international benchmark, Brent crude. Prices have fluctuated, but reports of an $80 baseline in the Western media are unlikely to be accurate.

In the past, oil price estimates were fundamental to the annual budget decisions. Vision 2030 changed that by diversifying the economy and reducing the nation's dependence on oil. The reforms were first part of a budget in 2017 and have insulated Saudi Arabia from the structural changes and dynamic shifts in global oil markets ever since.

Prices and production

Nonetheless, oil remains a significant part of the economy.

Even if the average Brent oil price for 2023 stays around $80, it will be down by around 20% from 2022. And so, a price assumption of $40 a barrel leaves breathing room in the budget, at a level around the lowest average price since 2004, at $42 in 2020.

There is no doubt that oil prices will continue to influence the budget for many years to come.

The Kingdom currently produces 9 million barrels of oil per day, and Saudi oil exports have fallen to less than 7 million barrels per day. Production was 9.9 million barrels a day in 2017, hitting 10.3 million in 2018, 9.7 million in 2019, 9.2 million in 2020, 9.1 million in 2021 and 10.5 million in 2022, before easing back to 9.7 million for this year.

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