Saudi Arabia’s Vision 2030 Spending Push Leads to Wider Budget Deficits

Saudi Arabia is forecasting wider budget deficits in the coming years, as the kingdom prioritizes spending on its Vision 2030 plan, an ambitious agenda aimed at modernizing the economy and reducing its reliance on oil. This fiscal expansion comes despite a projected decline in oil revenue, reflecting the government’s commitment to accelerating economic diversification efforts.

The Saudi Ministry of Finance has projected a budget deficit of 118 billion Saudi riyals ($31.46 billion), or 2.9% of GDP, for 2024. This represents an upward revision from the earlier projection of 1.9%, as the government maintains its expansionary fiscal policy.

The kingdom’s budget shortfall is expected to persist in the coming years, with projected deficits of 2.3% of GDP in 2025, 2.9% in 2026, and 3% in 2027. Despite these deficits, the government has indicated its commitment to fiscal prudence, aiming to avoid excessive spending that could lead to economic overheating.

The increased spending is primarily driven by investments in transformative projects aligned with Vision 2030. These include investments in various sectors, including infrastructure, technology, tourism, and renewable energy, as well as funding for large-scale projects such as Neom, a futuristic megacity under development.

While oil remains a major source of revenue for Saudi Arabia, the government is actively seeking to diversify its income streams. Non-oil economic activity has shown promising growth, expanding by 3.7% in 2024 and projected to reach 4.4% in the medium term. This growth is attributed to stronger domestic demand and ongoing structural reforms designed to attract foreign investment and boost private sector activity.

Despite facing headwinds from a slowing global economy and geopolitical uncertainties, Saudi Arabia has demonstrated resilience. The kingdom’s fiscal position remains strong, supported by significant government reserves and manageable levels of public debt.

The government is exploring various financing options, including borrowing and alternative financing mechanisms, to fund the anticipated budget deficits and ensure debt sustainability.

Key Takeaways:

• Saudi Arabia is projecting larger budget deficits in the coming years, driven by increased spending on Vision 2030 initiatives.
• The wider deficits reflect a prioritization of economic diversification efforts despite lower projected oil revenues.
• The government is committed to prudent fiscal management to avoid economic overheating.
• Strong growth in non-oil sectors and the kingdom’s strong financial position provide some cushion against the challenges posed by wider deficits.

Saudi Arabia’s economic outlook is characterized by a balancing act between ambitious diversification goals and fiscal sustainability. The government’s commitment to Vision 2030 is driving significant investments and economic transformation, while the reliance on oil revenue and global economic headwinds pose ongoing challenges.