Finance

Saudi Arabia to report budget deficits until 2026

By Andrew Hammond, Pramod Kumar

October 2, 2023, 9:32 AM

Saudi budget deficit — Saudi Arabia's finance minister Mohammed Al Jadaan said that the budget deficit will increase over the next two years due to an increase in spending

Deficit predicted to be 2.3%
Driven by increased spending
4.4% real GDP growth forecast for next year

Saudi Arabia, the world’s largest oil exporter, expects to report budgetary deficits each year until 2026, the kingdom’s finance ministry said.

It added that GDP is likely to rebound after taking a hit this year from extended oil production cuts.

The Arab world’s largest economy anticipates real GDP to grow by 0.03 percent in 2023, compared with a previous forecast for growth of 3.1 percent. The budget deficit is predicted at 2 percent of GDP, compared with an earlier projection for a 0.4 percent surplus.

This compares to an International Monetary Fund (IMF) prediction last month that growth would slow below its latest official figure of 1.9 percent for 2003. This would be alongside a Saudi budget deficit of 1.2 percent of GDP in 2023 from a surplus of 2.5 percent in 2022.

The IMF also forecast the deficit would rise further to 1.6 percent of GDP next year.

The government’s latest estimate puts the deficit at 1.9 percent of GDP in 2024, or SAR 79 billion ($21 billion). Total revenue is predicted to be SAR 1.17 trillion and expenditure at SAR 1.25 trillion, it said.

The pre-budget statement gave figures for 2023 of SAR 1.18 trillion for total revenue, versus spending of SAR 1.26 trillion. This is slightly up on earlier projections of revenue at SAR 1.13 trillion and spending at SAR 1.114 trillion.

The government also predicted Saudi Arabia’s budget deficit of 1.6 percent of GDP in 2025, then 2.3 percent in 2026.

The kingdom’s finance minister Mohammed Al-Jadaan said public debt would increase due to the expansion in spending.

The government will continue to look for opportunities to finance strategic capital projects and infrastructure, seeking to diversify financing channels. This would maintain capital efficiency and deepen debt markets, he added.

Saudi Arabia sharply reduced oil output as part of its strategy to manage a period of lower demand. This brought a windfall to Aramco as prices hover near $100 a barrel. Analysts say this is giving a boost to the non-oil economy despite a broader slowdown in the short-term.

The government recently said it will extend its voluntary oil production cut of one million barrels per day (bpd) until the end of 2023.

As a result growth is predicted to gradually return to levels close to the 8.7 percent of 2022, when the kingdom reported its first budget surplus in nearly a decade.

Real GDP is projected to grow by 4.4 percent in 2024, 5.7 percent in 2025 and 5.1 percent in 2026, the finance ministry statement said.