Saudi Arabia faces increasing fiscal risks due to mounting
government spending and declining oil prices, according to Fitch Ratings. The
kingdom’s fiscal deficit for 2025 is now projected at 5.3% of GDP, nearly
double previous estimates, with cautious signs of fiscal tightening expected in
2026.
Saudi Arabia’s Fiscal Outlook and Rising Deficit
As reported by Reuters on October 3, 2025, Fitch Ratings
highlighted significant fiscal challenges confronting Saudi Arabia amid
declining oil revenues and expansive fiscal commitments tied to the Vision 2030
economic reform programme. Fitch noted that Saudi Arabia’s fiscal deficit for
2025 has widened sharply to 5.3% of gross domestic product (GDP), almost double
the initial government projection of 2.3%. This represents a large increase
from expectations set last year and reflects both revenue shortfalls and
higher-than-anticipated spending.
The Saudi Ministry of Finance, in a pre-budget statement
released on September 30, 2025, projected a fiscal deficit for 2026 of 3.3% of
GDP (approximately 165 billion riyals or $44 billion), up from a budgeted
forecast of 2.9%. Total government expenditure for 2026 is expected to reach
1.31 trillion riyals ($349 billion), while revenues are forecast at 1.14
trillion riyals ($304 billion).
Fitch linked the revenue shortfall primarily to lower oil
earnings amid the recent oil price dip, despite strong non-oil revenue
performance driven by robust economic diversification efforts. The agency
expects the deficit to shrink by about one-third in 2026, as the government
aims for tightened fiscal management with stable oil prices and increased
non-oil income.
Vision 2030 and Spending Commitments
Saudi Arabia’s Vision 2030 initiative, central to the
kingdom’s economic transformation, entails heavy investment demands that weigh
on public finances. Fitch observed that the ambitious Vision 2030 plan, led by
the Public Investment Fund (PIF) which manages nearly $1 trillion in assets,
involves hundreds of billions of dollars funnelled into diversified sectors to
reduce dependence on hydrocarbons.
Key projects under Vision 2030 include NEOM, a vast
futuristic urban and industrial development along the Red Sea coast, spanning
an area nearly the size of Belgium. These mega-projects require sustained
capital investment, increasing fiscal pressures.
The government foresees a 5.1% rise in revenues for 2026
alongside a modest 1.7% cut in spending compared to 2025 projections. Fitch
anticipates fiscal tightening will be achieved via a combination of steady oil
revenues, enhanced non-oil income, and careful reductions in both current and
capital expenditure.
Government Response and Economic Diversification Efforts
According to Saudi Arabia’s Ministry of Finance, as cited by
Asharq Al-Awsat in August 2025, the kingdom’s capacity to reassess spending
priorities during economic uncertainties has been strengthened by reforms under
Vision 2030. The ministry emphasised its cautious and flexible fiscal approach,
marked by a shift away from procyclical policies toward maintaining financial
balance that supports long-term growth.
The ministry highlighted decades of experience managing
energy market volatility and the accelerated institutional learning gained over
the past decade as factors allowing timely spending adjustments in response to
oil price fluctuations and geopolitical tensions.
Furthermore, the Ministry of Finance pointed to external
validation of Saudi Arabia’s fiscal reforms and economic diversification in
reports by the International Monetary Fund (IMF), including the April 2025
Article IV consultation. The IMF praised the kingdom’s efforts in fiscal
planning, monetary stability, and non-oil sector expansion, concluding that
Saudi Arabia’s economic transformation had materially enhanced resilience to
external shocks.
Economic Growth and Non-Oil Sector Progress
Saudi Arabia’s economy is showing signs of steady growth
driven by non-oil activities. The Finance Ministry forecasted real GDP growth
of 4.4% in 2025 and 4.6% in 2026, supported by government-led projects and
private-sector investment under Vision 2030. This contrasts with a modest 1.3%
growth in 2024 and aligns with IMF reassessments, which raised Saudi’s 2025 GDP
forecast to 3.5% in June 2025.
Non-oil GDP growth is expected to hover around 3.5%
medium-term, driven by structural reforms and sustained injections via the
Public Investment Fund (PIF). Legal and regulatory reforms since 2016,
including updates to the investment law and labour market regulations, have
bolstered investor confidence and productivity.
Oil Market Dynamics and Fiscal Vulnerabilities
Despite efforts to diversify the economy, Saudi Arabia’s
fiscal position remains sensitive to oil price fluctuations. Fitch emphasised
the kingdom’s vulnerability to global oil market shifts, particularly as the
fiscal deficit expanded due to lower oil revenues in 2025.
Reuters noted in April 2025 that declining oil prices
intensified pressure on the Saudi government to either reduce spending or
increase borrowing to fund economic plans, confirming the ongoing challenge of
balancing ambitious development goals with fiscal sustainability.
Saudi Arabia is the world’s leading oil exporter and oil
production is expected to gradually recover to 11 million barrels per day by
2030—below the sustainable capacity of 12.3 million barrels—reflecting
alignment with global demand-supply dynamics.
Outlook and Fiscal Discipline Going Forward
Fitch maintained an overall cautious outlook, recognising
expected fiscal consolidation in 2026 through increased non-oil revenues and
spending restraint. The agency noted the Saudi government’s efforts to improve
financial discipline after a larger-than-forecast deficit in 2025.
The kingdom’s finance officials have indicated ongoing
fiscal prudence with periodic re-evaluations of spending plans tied to Vision
2030 projects. The Ministry of Finance affirmed confidence in sustaining
economic growth, despite uncertainties, by leveraging reform momentum,
budgetary discipline, and enhanced fiscal frameworks.
While fiscal risks are rising due to mounting spending and
oil price dips, Saudi Arabia’s broader economic transformation and fiscal
reforms aim to stabilise and strengthen public finances over the medium term.