Saudi Arabia expects fiscal deficit of 3.3% of GDP in 2026, finance ministry says

Saudi Arabia has significantly raised its projected fiscal deficits for 2025 and 2026, with the 2025 deficit now estimated at 5.3% of GDP ($65.33 billion) and the 2026 deficit at 3.3% of GDP ($44 billion), both substantially higher than previous forecasts. This upward revision reflects increased expenditure linked to the Vision 2030 economic overhaul, even as the Kingdom anticipates robust real GDP growth of 4.4% in 2025 and 4.6% in 2026, primarily driven by non-oil sector expansion. The larger deficits underscore the substantial financial commitment required for Saudi Arabia's ambitious diversification strategy.

Analysis

Saudi Arabia's pre-budget statement signals a significant increase in fiscal expansion to fund its Vision 2030 economic overhaul. The projected fiscal deficit for 2025 has been dramatically revised upward to 5.3% of GDP, or 245 billion riyals ($65.33 billion), more than double the 101 billion riyals previously forecast. The deficit is expected to remain substantial in 2026 at 3.3% of GDP, or 165 billion riyals, based on projected expenditures of 1.31 trillion riyals against revenues of 1.14 trillion riyals. This increased spending is being justified by a bullish outlook on economic growth, with the finance ministry forecasting real GDP expansion of 4.4% in 2025 and 4.6% in 2026, explicitly driven by the non-oil sector. This outlook aligns with the IMF's upgraded 2025 GDP growth forecast of 3.5%. The data highlights a core strategic trade-off: the Kingdom is accepting higher near-term deficits and increased borrowing to finance long-term diversification, with the success of this strategy contingent on the non-oil economy delivering on these strong growth projections.

Key Decisions for Investors

• Investors in Saudi sovereign debt should anticipate increased bond issuance to finance the wider fiscal deficits, which may place upward pressure on yields in the medium term.
• Equity investors should focus on domestic companies poised to be primary beneficiaries of accelerated Vision 2030 spending, particularly those in non-oil sectors central to the government's growth strategy.
• Monitor non-oil GDP growth metrics closely, as any failure to meet the government's robust forecasts of 4.4% and 4.6% for 2025-2026 would signal rising fiscal sustainability risks.
• Consider that while the focus is on non-oil growth, oil price fluctuations remain a critical variable for government revenues and its capacity to fund these deficits without further strain.