Saudi Arabia expects wider budget deficits for several years as it ramps up spending to support growth in the face of regional conflict. Higher oil prices have largely offset lower export volumes, lifting revenue above prewar estimates, but spending is set to rise faster.
Next year’s preliminary budget shows the kingdom is willing to keep borrowing to bolster its defenses and build trade routes that bypass the Strait of Hormuz. That raises the prospect of government debt breaching its 40%-of-GDP ceiling before the decade is out if growth doesn’t pick up.
The Finance Ministry now sees the government’s budget deficit at 4.9% of GDP this year, up from the 3.3% it predicted late last year. The economy is expected to shrink 3.6% this year as oil output falls sharply, but could rebound almost 13% in 2027 if oil flows are restored. The government says the non-oil economy and job creation drove growth in the first half of this year.
Riyadh has brought oil exports close to prewar levels by piping crude to the Red Sea and sending tankers through Hormuz, despite Iranian threats. Still, the government has taken steps to cut back on non-essential spending.
