Saudi Arabia, the world’s largest crude oil exporter, is hoping to post its first budget surplus in nearly a decade next year on the back of improved oil prices and restricted government spending, a reality that is everything Nigeria wished for.
Unlike Africa’s biggest oil producer struggling to fund its yearly budget, or even fund an opaque subsidy scheme, Saudi Arabia has declared it will achieve a budget surplus of $24 billion, or about 2.5 percent of its gross domestic product, in 2022, its first since 2014.
The improvement in financial fortunes is expected to give Saudi the financial muscle it needs to not only scale up its oil production capacity by 1 million bpd to 13 million barrels per day, but also invest heavily in mitigating its carbon emissions, according to Saudi Crown Prince Mohammed bin Salman.
“Surpluses will be used to increase government reserves to counter the needs posted by the coronavirus pandemic, strengthen the kingdom’s financial position, and boost its capabilities to face global shocks and crises,” Salman told Saudi’s official press agency, SPA.
Data from the Saudi Arabia budget office show the country’s economy is expected to grow by almost 7.4 percent next year, after expanding by a modest 2.9 percent in 2021.
The budget document noted that Saudi Arabia’s economic growth would be driven by high oil prices and “the expected improvement in non-oil GDP assuming that the economy continues to recover gradually from the effects of the COVID-19 pandemic.”
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Project watchers say Saudi Aramco’s multi-billion Zuluf offshore incremental project is expected soon to see the light of day, with the Saudi state-owned firm expected to place awards within months for the project.
The much-delayed Zuluf development is expected to cost up to $8 billion and aims to boost the country’s crude output by as much as 600,000 barrels per day, almost doubling the field’s production capacity.
“We see more flexibility on the project spending front and Zuluf is expected to be at the forefront of Aramco’s growth ambitions,” one person close to the Saudi long-term agreement (LTA) arrangement with offshore contractors told SPA.
Saudi Arabia’s fiscal projections next year are a marked improvement from recent years that have seen the country post heavy budget deficits as the coronavirus pandemic disrupted global economies and hammered oil prices.
Nigeria’s story is the exact opposite of Saudi’s successful economic reform.
The Federal Government spent N6.17 trillion more than it earned in 2020, leaving its fiscal deficit at 4 percent of GDP, the highest in 21 years, according to Central Bank of Nigeria (CBN) data analysed.
Further analysis shows although, in the first seven months of 2021, revenue rose to N2.45 trillion from N2.17 trillion in the corresponding period last year, expenditure rose faster, climbing 16 percent to N6.43 trillion from N5.53 trillion within the same period.
The above resulted in a deficit of N5.1 trillion in seven months of 2021, representing 51 percent, increase compared with the N3.36 trillion recorded in the corresponding period last year.
“If we do not meet our revenue target, which looks too ambitious, the deficit financing for 2021 will likely be higher,” Toki Mabogunje, president, Lagos Chamber of Commerce and Industry (LCCI), said.
Nigeria needs to think in terms of decentralisation to move forward, Joe Nwakwue, chairman, Society of Petroleum Engineers (SPE), said, noting, “The government must focus on setting up the right regulations and allow private sector to drive the oil and gas sector.”
Most experts have long urged for reforms that could unleash faster growth often feeling they are being held back by an out-of-touch Federal Government in Abuja.
Nigeria’s unemployment rate has more than quadrupled over the last six years as the economy went through two recessions, overshadowing efforts by President Muhammadu Buhari’s administration to create jobs.
The widening fiscal deficit and other challenges to revenue in Nigeria are unlikely to scuttle the government’s plans to tap between $3 billion and $6 billion from the international debt market this year, according to Samir Gadio, head of Africa strategy at Standard Chartered Bank.
The last time Nigeria’s fiscal deficit exceeded 4 percent was in 1999, when the government opened the taps on infrastructure spending to give the economy a boost after years of military rule.
