Lower oil revenue main factor in Saudi Arabia’s budget revenue cut
November 4, 2019, 11:29 am

Lower oil revenue main factor in Saudi Arabia’s budget revenue cut

Saudi Arabia is expected to generate up to 833 billion riyals ($222 billion) in revenue, said Finance Minister Mohammed al-Jadaan. (File photo Reuters)

Saudi Arabia is set to record an 84 billion riyals ($22.4 billion) decrease in revenue in 2020 compared to 2019, according to budgetary details released by the Minister of Finance Mohammed al-Jadaan on Thursday.

Next year’s budget is expected to generate up to 833 billion riyals ($222 billion) in revenue for the Kingdom compared to SAR 917 billion projected in 2019.

Analysts have pointed to a variety of factors for this fall, most significantly a reduction in oil revenues. In a recent report, Jadwa Investment noted that, “The main factor in the adjustment in overall revenue is primarily due to oil revenue.”

Oil revenue has gone down for two primary reasons. The reduction in oil revenue is due to two primary causes.

Firstly, oil prices have been on a downward trend since early 2019. Oil is currently trading at around $60 per barrel – a significant drop-off in comparison to the $81 per barrel highs during the same period in 2018.

This downward trend had a significant hit on government revenue in 2019. According to a recent report by Al Rajhi Capital, 2019 revenue targets required around $65 per barrel in the second half of 2019 – not the current lower price.

“With YTD oil price at $56 per barrel, total revenue is now likely to come lower by 6 percent than initially estimated … Assuming 10 percent year-on-year increase in non-oil revenue for 2019, oil revenue for 2019 is likely to be around SAR 593 billion - which is around 65 percent of total revenues expected,” the firm said.

Secondly, energy-giant Saudi Aramco, which formally begun its initial public offering (IPO) process on Sunday, has announced a reduction in royalty structure from 2020 onwards. This move will likely lead to a decrease in revenue from the company.

In the new plan, royalties on crude oil and condensate production on Brent prices of up to $70 per barrel will reduce from 20 percent to 15 percent. Meanwhile, the royalty rate will increase to 45 percent from 40 percent on prices between $70 and $100 per barrel, and increase from 50 percent to 80 percent on prices above $100 per barrel.

Under these figures, and with oil prices anchored in the lower bracket of $70 per barrel and below, revenue from Aramco will likely decrease.

“The combination of changes in the tax structure related to Aramco, and a more subdued outlook on oil markets will mean that government’s oil tax revenue component will likely remain contained if oil prices fail to rise above current levels,” Jadwa added.

Expenditure throughout 2019 is also likely to come in lower than initial estimates suggested, Al Rajhi added. The firm noted that it believes that this reduction is mainly due to lowering capital expenditure, which is the result of spending being sent through the country’s sovereign wealth fund, the Public Investment Fund (PIF), as well as government efficiency improvements and a buoyant private sector.

Several recent reports have pointed to the growth that the Saudi Arabian non-oil economy has experienced throughout 2019. In Q2 2019, Saudi Arabia’s non-oil GDP grew by 2.9 percent year-on-year, the highest level since 2015.

An expansion of privatization and the private sector as a whole has the additional benefit of relieving public sector wage expenditure, which is a long term positive, Al Rajhi added.

Real GDP growth is expected to slow to 1.9 percent with real oil growth slowing to 0.7 percent as oil production cut policies are implemented, according to the IMF.

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BENEFIT, the Kingdom’s innovator and leading company in Fintech and electronic financial transactions service, held its Annual General Meeting (AGM) at the company’s headquarters in the Seef District.
During the meeting, shareholders approved all items listed on the agenda, including the ratification of the minutes of the previous AGM held on 26 March 2024. The session reviewed and approved the Board’s Annual Report on the company’s activities and financial performance for the fiscal year ended 31 December 2024, and the shareholders expressed their satisfaction with the company’s operational and financial results during the reporting period.
The meeting also reviewed the Independent External Auditor’s Report on the company’s consolidated financial statements for the year ended 31 December 2024. Subsequently, the shareholders approved the audited financial statements for the fiscal year. Based on the Board’s recommendation, the shareholders approved the distribution of a cash dividend equivalent to 10% of the paid-up share capital.
Furthermore, the shareholders endorsed the allocation of a total amount of BD 172,500 as remuneration to the members of the Board for the year ended 31 December 2024, subject to prior clearance by related authorities.
The extension of the current composition of the Board was approved, which includes ten members and one CBB observer, for a further six-month term, expiring in September 2025, pending no objection from the CBB.
The meeting reviewed and approved the Corporate Governance Report for 2024, which affirmed the company’s full compliance with the corporate governance directives issued by the CBB and other applicable regulatory frameworks. The AGM absolved the Board Members of liability for any of their actions during the year ending on 31st December 2024, in accordance with the Commercial Companies Law.
In alignment with regulatory requirements, the session approved the reappointment of Ernst & Young (EY) as the company’s External Auditors for the fiscal year 2025, covering both the parent company and its subsidiaries—Sinnad and Bahrain FinTech Bay. The Board was authorised to determine the external auditors’ professional fees, subject to approval from the CBB, and the meeting concluded with a discussion of any additional issues as per Article (207) of the Commercial Companies Law.
Speaking on the company’s performance, Mr. Mohamed Al Bastaki, Chairman BENEFIT , stated: “In terms of the financial results for 2024, I am pleased to say that the year gone by has also been proved to be a success in delivering tangible results. Growth rate for 2024 was 19 per cent. Revenue for the year was BD 17 M (US$ 45.3 Million) and net profit was 2 Million ($ 5.3 Million).

Mr. Al Bastaki also announced that the Board had formally adopted a new three-year strategic roadmap to commence in 2025. The strategy encompasses a phased international expansion, optimisation of internal operations, enhanced revenue diversification, long-term sustainability initiatives, and the advancement of innovation and digital transformation initiatives across all service lines.
“I extend my sincere appreciation to the CBB for its continued support of BENEFIT and its pivotal role in fostering a stable and progressive regulatory environment for the Kingdom’s banking and financial sector—an environment that has significantly reinforced Bahrain’s standing as a leading financial hub in the region,” said Mr. Al Bastaki. “I would also like to thank our partner banks and valued customers for their trust, and our shareholders for their ongoing encouragement. The achievements of 2024 set a strong precedent, and I am confident they will serve as a foundation for yet another successful and impactful year ahead.”
Chief Executive of BENEFIT; Mr. Abdulwahed AlJanahi commented, “The year 2024 represented another pivotal chapter in BENEFIT ’s evolution. We achieved substantial progress in advancing our digital strategy across multiple sectors, while reinforcing our long-term commitment to the development of Bahrain’s financial services and payments landscape. Throughout the year, we remained firmly aligned with our objective of delivering measurable value to our shareholders, strategic partners, and customers. At the same time, we continued to play an active role in enabling Bahrain’s digital economy by introducing innovative solutions and service enhancements that directly address market needs and future opportunities.”
Mr. AlJanahi affirmed that BENEFIT has successfully developed a robust and well-integrated payment network that connects individuals and businesses across Bahrain, accelerating the adoption of emerging technologies in the banking and financial services sector and reinforcing Bahrain’s position as a growing fintech hub, and added, “Our achievements of the past year reflect a long-term vision to establish a resilient electronic payment infrastructure that supports the Kingdom’s digital economy. Key developments in 2024 included the implementation of central authentication for open banking via BENEFIT Pay”
Mr. AlJanahi concluded by thanking the Board for its strategic direction, the company’s staff for their continued dedication, and the Central Bank of Bahrain, member banks, and shareholders for their valuable partnership and confidence in the company’s long-term vision.