Riyadh, Kingdom of Saudi Arabia.
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Saudi Arabia lowered its growth expectations and raised its budget deficit estimates for the fiscal years 2024 to 2026, looking forward to a period of higher spending and lower expected oil revenues.
Real GDP is now expected to grow by 0.8% this year, a significant decline from the previous estimate of 4.4%, according to the latest pre-budget report published by the Finance Ministry on Monday. GDP growth forecast for 2025 was also lowered from the previous estimate of 5.7% to 4.6%; While expectations for 2026 were reduced from 5.1% to 3.5%.
“The fiscal year 2025 budget highlights the Kingdom’s commitment to accelerating regulatory and structural reforms, as well as policy development,” the pre-budget report said. “It also focuses on transformative spending to promote sustainable economic growth, improve social development, and improve quality of life.”
The latest report also emphasized the Saudi government's plans to deploy sovereign and development funds “to invest capital while empowering the private and non-profit sectors to promote growth and prosperity.”
Saudi authorities also expect the budget to remain in deficit over the next few years, as the Kingdom prioritizes spending to achieve the goals of the Vision 2030 plan to modernize and diversify the Saudi economy, which relies heavily on oil.
The Ministry of Finance expected a wider budget deficit of about 2.9% of GDP for the year 2024, compared to previous expectations of 1.9% for this year. It expected a deficit of 2.3% and 2.9% in 2025 and 2026, respectively, which is also larger than previous estimates.
The price of oil in Saudi Arabia — which is what a barrel of crude oil needs to cost in order to balance its government budget — has risen in recent months and years, and may rise even higher as spending increases.
The IMF's latest forecast issued in April set the fiscal breakeven figure at $96.20 for 2024, representing an increase of nearly 19% from the previous year. This figure is also about 36% higher than the current price of a barrel of Brent crude, which was trading at about $70.70 as of Tuesday afternoon.
Oil prices are expected to remain low for at least the medium term amid slowing demand and increasing supply globally.
Saudi Arabia is hosting major international events that will require steep spending — such as the 2034 World Cup and Expo 2030 — as well as building multi-trillion-dollar mega-projects like NEOM, backed by the kingdom's massive sovereign wealth fund, the Public Investment Fund. .
“Saudi Arabia’s GDP dances to the rhythm of oil, and with the recent data released by the Ministry of Finance, it is clear that as oil flows, so does the economy,” said Tariq Solomon, Chairman Emeritus of the American Chamber of Commerce in Saudi Arabia. CNBC. “But when the wells slow down, so does the growth.”
Saudi Arabia's public debt has grown from about 3% of GDP in the 2000s to nearly 28% today, according to the International Monetary Fund — a huge jump, but still low by international standards. For example, the average public debt in EU countries is 82%. In the United States in 2023, that number was 123%.
Its relatively low level of debt and high credit rating make it easy for Saudi Arabia to take on more debt as it needs. The Kingdom also implemented a series of reforms to promote foreign investment, eliminate risks, and diversify sources of revenue. While the country's economy contracted during the last four consecutive quarters, non-oil economic activity grew by 4.4% in the second quarter on an annual basis, an increase of 3.4% in the previous quarter.
