Saudi Arabia reduces growth projections and anticipates larger budget shortfalls.

• The Ministry of Finance published a pre-budget report on Monday stating that Saudi Arabia's real GDP is predicted to increase by 0.8% this year, significantly lower than the previously estimated 4.4%.
• The kingdom's authorities anticipate that the budget will continue to be in deficit for the upcoming years, as they prioritize spending to achieve the goals of the Vision 2030 economic diversification program.
• The fiscal breakeven oil price in Saudi Arabia has risen and may increase further, as oil prices are predicted to remain low.

Saudi Arabia revised its growth projections and increased its budget deficit predictions for the years 2024 to 2026, anticipating a period of increased expenditure and decreased anticipated oil income.

The latest pre-budget report from the Ministry of Finance indicates that real gross domestic product (GDP) growth is now expected to be 0.8% this year, a significant decrease from the previous estimate of 4.4%. Additionally, the GDP growth projections for 2025 and 2026 have been revised downward. The GDP growth projection for 2025 has been reduced from 5.7% to 4.6%, while the outlook for 2026 has been trimmed from 5.1% to 3.5%.

"The pre-budget report stated that the FY2025 budget emphasizes the Kingdom's dedication to speed up regulatory and structural changes, as well as the creation of policies. Additionally, it prioritizes transformative expenditures to foster sustainable economic growth, improve social advancement, and enhance the standard of living."

The Saudi government is planning to use sovereign and development funds for capital investment and support the growth and prosperity of both the private and non-profit sectors, as stated in the latest report.

The Saudi government anticipates that the budget will continue to be in deficit in the coming years, as they prioritize spending to achieve the goals of their Vision 2030 plan to transform and diversify their heavily oil-dependent economy.

The Finance Ministry forecasted a larger budget shortfall of approximately 2.9% of GDP for 2024, compared to the previous projection of 1.9% for the year. Additionally, the ministry predicted deficits of 2.3% and 2.9% in 2025 and 2026, respectively, both wider than the previous estimates.

The cost of a barrel of crude needed to balance Saudi Arabia's government budget has increased in recent months and years and may continue to rise with increased spending.

The IMF's latest forecast predicts a fiscal breakeven figure of $96.20 for 2024, which is a 19% increase from the previous year. This figure is also 36% higher than the current price of a barrel of Brent crude, which was trading at around $70.70 as of Tuesday afternoon.

The global oil market is predicted to experience low prices in the near future due to decreasing demand and an increase in supply.

The Public Investment Fund, backed by Saudi Arabia's sovereign wealth, is funding multi-trillion dollar megaprojects such as Neom, in addition to hosting major international events like the World Cup 2034 and Expo 2030, which will require significant spending.

"According to Tarik Solomon, chairman emeritus at the American Chamber of Commerce in Saudi Arabia, the country's GDP is closely tied to oil production. Recent data from the Ministry of Finance shows that as oil production increases, so does the economy. However, when oil production decreases, so does economic growth."

The public debt in Saudi Arabia has increased from approximately 3% of its GDP in the 2010s to about 28% today, according to the International Monetary Fund. This represents a significant increase, but it is still relatively low compared to the average public debt in EU countries, which is around 82%. In the U.S., the public debt in 2023 was 123%.

Saudi Arabia's low debt level and high credit rating allow it to take on more debt as needed. The kingdom has implemented reforms to attract foreign investment and reduce revenue streams. Despite a four-quarter economic contraction, non-oil economic activity grew 4.4% in the second quarter, up from 3.4% in the previous quarter.