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Saudi Arabia has estimated that its fiscal deficit will widen to almost 3% of GDP by 2024, according to a government statement released on Monday. This increase in spending is part of the country's efforts to boost growth and achieve the goals set out in its Vision 2030 economic transformation plan.
The kingdom is expected to have a fiscal deficit of 118 billion riyals ($32 billion) this year, equivalent to 2.9% of GDP. This is higher than the 79 billion riyals projected in the 2024 budget statement from December.
Despite lower oil prices and voluntary oil production cuts, Saudi Arabia, as the world's top oil exporter, has continued to increase its spending. It anticipates a deficit of 2.3% of GDP in 2025.
"We have more revenues than expected...the increase in spending is where the change occurred," said Naif al-Ghaith, Riyad Bank's chief economist.
Saudi Arabia's Vision 2030 aims to reduce its dependency on oil, requiring substantial investments to develop new economic sectors and sustainable revenue streams.
The International Monetary Fund (IMF) estimates that the kingdom needs oil prices at around $100 per barrel to balance its budget.
The government's forecast predicts real GDP growth of 0.8% this year, with a sharp acceleration to 4.6% in 2025, largely due to increased oil production.
Total revenue for 2024 is expected to be 1.24 trillion riyals, with government spending estimated at 1.36 trillion riyals. In comparison, revenue for this year was budgeted at 1.17 trillion riyals, with spending at 1.25 trillion riyals.
The government projects revenues of 1.18 trillion riyals and expenditures of 1.29 trillion riyals in 2025, with spending likely to represent about 30% of GDP over the next three years.
In the government's statement on Monday, it estimated growth in non-oil activities of 3.7% in 2024, down from an average of almost 6% over the last three years.
($1 = 3.7513 riyals)
Analysis:
The widening fiscal deficit in Saudi Arabia is a significant indicator of the country's economic challenges and its reliance on oil revenues. The increase in spending, despite lower oil prices, highlights the need for diversification and sustainable revenue sources as outlined in the Vision 2030 plan.
Investors and global markets will be closely watching the impact of these fiscal projections on Saudi Arabia's economy and the price of oil. The country's ability to balance its budget and stimulate economic growth will be key factors influencing investor confidence and market stability.
Individuals with investments in oil-related industries or exposure to the Saudi Arabian market should pay attention to these developments and consider diversifying their portfolios to mitigate potential risks associated with the country's fiscal challenges.
