Saudi Arabia sees deeper budget deficits ahead

Saudi Arabia anticipates larger budget deficits over the next several years as it increases spending to fuel economic growth amid regional strife. While higher oil prices have largely compensated for reduced export volumes, boosting revenue above pre-war projections, spending is projected to outpace revenue growth. The kingdom's preliminary budget for next year indicates it remains prepared to borrow to fortify its defenses and construct trade routes that circumvent the Strait of Hormuz.

This could potentially push government debt above the 40% of GDP limit before the decade ends if economic growth does not accelerate. The Finance Ministry now estimates the government's budget deficit at 4.9% of GDP for this year, up from the 3.3% predicted earlier. The economy is forecast to contract 3.6% this year due to a significant decline in oil output, but could rebound nearly 13% in 2027 should oil flows be restored.

The government attributes the first-half growth to the non-oil economy and job creation. Riyadh has brought oil exports nearly to pre-war levels by piping crude to the Red Sea and navigating tankers through Hormuz, despite Iranian threats. However, the government has implemented measures to curb non-essential spending.