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CAIRO – 17 August 2017: Moody's Investors Service ranked Saudi Arabia’s greatly reduced fiscal deficit ‘credit positive,’ which fell to SAR 72 billion ($19 billion) in the first six months of the year, a Thursday report said.
The credit rating firm added that the smaller deficit reflected a sharp increase in oil revenues from higher oil prices, illustrating Saudi Arabia’s oil dependence.
Saudi oil revenues hiked 63 percent or SAR 82.1 billion in the first half of 2017, although the Kingdom is abiding by OPEC production cut agreement until March 2018, while non-oil revenues decreased 12 percent or SAR 12.7 billion in H1 of 2017.
In November 2016, OPEC agreed to cut its own production by 1.2 million barrels per day (bpd) as of January 2017 for a six-month period, to reduce supply glut. The deal was extended in May so that output is to be reduced by 1.8 million bpd for additional nine months until March 2018.
Higher oil revenue represented 69 percent of total government revenue in H1 of 2017, up from 55 percent in the year-ago period.
“Despite the government’s wide-ranging economic and fiscal reforms to reduce its dependence on oil revenue, the results of efforts to grow non-oil revenue have been mixed,” Moody’s said.
Customs revenues declined SAR 2.9 billion, despite increased duties on hundreds of items in 2017, reflecting the weak growth of import-dependent non-oil sectors. Income tax revenues increased 23 percent or SAR 1.7 billion in the first six months of this year.
“Full-year fiscal consolidation will remain contingent on oil price stability in the second half of the year, given the modest progress at increasing non-oil revenues,” Moody’s highlighted.
Moody’s expected that the Saudi government would undershoot its spending target, after total spending comprised 43 percent of the budgeted amount in the first half of 2017, which would put further pressure on non-oil gross domestic product (GDP) growth.