Riyadh, Saudi Arabia.
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Saudi Arabia has cut its growth forecasts and raised its fiscal deficit estimates for fiscal 2024 to 2026 as it looks ahead to a period of higher spending and lower forecast oil revenue.
Real gross domestic product is now expected to grow 0.8% this year, a dramatic decline from a previous estimate of 4.4%, according to the latest preliminary budget report released by the Finance Ministry on Monday. The GDP growth forecast for 2025 was also cut to 4.6% from an earlier estimate of 5.7%; while the 2026 forecast was cut from 5.1% to 3.5%.
“The fiscal year 2025 budget underlines the Kingdom’s commitment to accelerate regulatory and structural reforms and policy development,” the pre-budget report said. “It also focuses on transformative spending to promote sustainable economic growth, enhance social development and improve the quality of life.”
The latest report also highlighted the Saudi government's plans to use sovereign and development funds “for capital investment while enabling both the private and non-profit sectors to promote growth and prosperity.”
Saudi authorities also expect the budget to run a deficit in the next few years as the kingdom prioritizes spending to meet the goals of its Vision 2030 plan to modernize and diversify the heavily oil-dependent Saudi economy.
The Treasury forecast a wider fiscal deficit of about 2.9% of GDP in 2024, compared with a previous forecast of 1.9% for the year. Deficits of 2.3% and 2.9% were forecast for 2025 and 2026, respectively, which were also higher than previous estimates.
Saudi Arabia's fiscal breakeven oil price – the cost a barrel of crude oil must cost to balance its national budget – has risen in recent months and years and could well rise further along with spending increases.
The IMF's most recent forecast, published in April, put the 2024 fiscal breakeven at $96.20, up about 19% from a year ago. The value is also about 36% higher than the current price of a barrel of Brent crude oil, which was trading at around $70.70 on Tuesday afternoon.
Oil prices are expected to remain subdued, at least in the medium term, given slowing demand and increased global supply.
Saudi Arabia hosts major international events that require big spending — like the 2034 World Cup and Expo 2030 — and is building multi-trillion-dollar megaprojects like Neom, which is backed by the kingdom's giant sovereign wealth fund, the Public Investment Fund.
“Saudi Arabia's GDP dances to the rhythm of oil, and it's clear from recent Treasury Department data that as oil gushes, so does the economy,” Tarik Solomon, chairman emeritus of the American Chamber of Commerce in Saudi Arabia, told CNBC. “But as the wells slow down, so does the growth.”
According to the International Monetary Fund, Saudi Arabia's public debt has risen from about 3% of GDP in the 2010s to about 28% today – a huge jump, but still low by international standards. For example, public debt in EU countries averages 82%. In the USA, this value was 123% in 2023.
The country's relatively low debt levels and high credit rating make it easier for Saudi Arabia to take on more debt if necessary. The kingdom has also launched a series of reforms to boost foreign investment, reduce risk and diversify revenue sources. While the country's economy has contracted for the past four consecutive quarters, non-oil economic activity grew 4.4% year-on-year in the second quarter and 3.4% in the previous quarter.
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