Saudi Deficit Forecast Hinges on Spending Habits

Saudi Arabia's fiscal outlook remains uncertain as forecasters disagree on whether the country's revenue gains from rerouting oil exports will be absorbed by capital and defense spending. The Kingdom sidestepped the export chokehold that hit Gulf neighbors, but where the deficit lands from here turns on how much of that revenue cushion gets eaten up by spending.

Fitch Solutions' BMI expects the fiscal deficit to widen to 5.9% of GDP this year as higher capital spending eats into the revenue gains. However, Moody's takes a different view, naming Saudi Arabia and Abu Dhabi as the only two Gulf exporters whose fiscal balance improves through the conflict.

The disagreement highlights the uncertainty surrounding the Kingdom's deficit forecast, with S&P sitting closer to Moody's on the mechanism. Hydrocarbon revenues aren't what's moving the regional picture, according to Ralf Wiegert, head of MENA economics at S&P Global Market Intelligence, as expected changes in oil prices and production volumes are likely to offset one another.

In related news, Aramco has offered additional crude oil cargoes for September loading outside the Strait of Hormuz after selling at least 4 million barrels to Chinese buyers this month. The move comes amid attacks on shipping and disruptions to exports through the Strait.