Saudi Arabia expects larger budget deficits on Vision 2030 spending boost

Expenditure projected to reach 29.5% of GDP next year, with revenue anticipated to drop 4.3% annually

Islands in Neom. Saudi Arabia is developing several giga projects as part of its Vision 2030 strategy. Getty Unsplash

Saudi Arabia expects its budget deficit to widen this year and next as the Arab world's largest economy boosts spending to finance its economic diversification agenda under the Vision 2030 plan.

The kingdom's deficit will reach 118 billion Saudi riyals ($31.46 billion) or 2.9 per cent of its gross domestic product this year, with revenue at about 1.24 trillion riyals and expenditure of about 1.36 trillion riyals, the finance ministry said on Monday.

Riyadh has revised its 2024 budget deficit projection higher from the earlier projection of 1.9 per cent as it continues to pursue its expansionary economic policy.

For 2025, the kingdom expects total revenue to reach about 1.18 trillion riyals, with expenditures at 1.28 trillion riyals, marking a deficit at 2.3 per cent of its GDP. The budget short fall is projected at 2.9 per cent in 2026 and 3 per cent in 2027, according to the last government data.

“The government continues to utilise the available fiscal resources to diversify the economic base through transformative spending, which includes sectoral and regional strategies, giga projects, Saudi Vision 2030 programmes, and the periodic review of project timelines,” the ministry said.

However, the kingdom will limit its expenditure to “avoid overheating the economy that might rise from increased government spending”, it added.

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The ministry projects total economic output in the kingdom to expand by 0.8 per cent this year, supported by a 3.7 per cent growth in the country's non-oil sector. The overall economy is projected to grow by 4.6 per cent in 2025, 3.5 per cent in 2026 and 4.7 per cent in 2027.

Saudi Arabia, the world’s leading oil exporter, is focused on diversifying its economy away from oil, which accounts for the bulk of its revenue. It's overarching Vision 2030 transformation programme seeks to widen its non-oil industrial base, and strengthen alternative non-oil revenue streams, further develop sectors including technology, property, tourism and infrastructure and attract foreign direct investment into the kingdom.

In June, Saudi Minister of Investment Khalid Al Falih said the kingdom was more than halfway through implementing Vision 2030.

“Our GDP has grown by some 70 per cent since we launched Vision 2030. We have moved from number 20 on the rankings of the G20 countries to number 16,” he told a conference in London.

“We are the second-fastest growing economy within the G20 at close to 7 per cent annualised GDP growth since launching Vision 2030.”

His remarks came after Finance Minister Mohammed Al Jadaan said in April that the country would “downscale” or “accelerate” some of the projects being carried out under the Vision 2030 agenda to adapt to current economic and geopolitical challenges.

Non-oil growth in the Arab world’s largest economy is projected to increase to 4.4 per cent in the medium term after moderating to 3.5 per cent this year, the International Monetary Fund said last month. This is mostly driven by stronger demand as the kingdom implements its Vision 2030 plan.

Saudi Arabia’s economy is projected to grow to 4.7 per cent in 2025 before averaging at 3.7 per cent in the following years, the Washington-based lender projected.

Mr Al Jaadan on Monday said the government is preparing to continue borrowing to finance the expected budget deficit and to repay the debt principal due in 2025.

The kingdom will also be searching for market opportunities to implement financing activities, including alternative government financing.

The volume of the public debt portfolio is expected to increase in a “deliberate manner” to ensure debt sustainability, as a result of the expansion in spending to accelerate the pace of implementing some programmes and projects to achieve the goals of Saudi Vision 2030, the minister said.

Despite the slowdown in global economic growth and continuing economic challenges and geopolitical tensions, Saudi Arabia has “demonstrated the strength of its fiscal position and the flexibility of its economy”, with “safe levels of government reserves and acceptable levels of public debt, in addition to a flexible spending policy” that helps deal with crises that may arise in the future, he added.