Oil Decline Hits Saudi Arabia’s Economy as Budget Deficit Widens
Saudi Arabia’s economy is growing again, but the recovery has come at a steep cost. As global oil prices falter, the world’s largest crude exporter is burning through cash to sustain its ambitious development agenda — and the numbers reveal the strain.
New figures from Riyadh’s Finance Ministry show the budget deficit widened sharply in the third quarter, reaching nearly 89 billion riyals ($23.6 billion) between July and September. That pushed the year-to-date shortfall close to $50 billion, a reminder that even booming growth cannot fully shield the kingdom from weaker energy markets.
The paradox is striking: while Saudi GDP expanded 5% — its strongest pace since early 2023 — the surge was driven in part by higher oil production, even as revenue from oil exports plunged.
Oil Revenue Falls, Non-Oil Income Stalls
Government data show oil income sliding from nearly $51 billion to just $40 billion, a year-on-year decline that erased much of the benefit from increased output. Non-oil revenue, meanwhile, stagnated at roughly $31.7 billion, suggesting the kingdom’s diversification push has yet to deliver meaningful fiscal relief.
That mix leaves the treasury heavily dependent on crude at a time when Brent prices have fallen about 10% this year to below $70 a barrel. Analysts estimate Saudi Arabia now needs prices closer to $94–$111 per barrel — depending on public spending levels — to balance its books.
Vision 2030 Meets Fiscal Reality
Crown Prince Mohammed bin Salman’s Vision 2030 transformation program remains at the center of the government’s economic strategy. Megaprojects such as NEOM and large-scale tourism, logistics, and infrastructure ventures continue to absorb tens of billions of dollars in public funds.
But maintaining that investment pace while energy revenues fall has forced the government to accept deeper deficits. Officials recently revised their 2025 budget forecast, projecting a shortfall equivalent to 5.3% of GDP — more than twice the estimate published earlier this year.
Strategic Spending or Fiscal Gamble?
Supporters argue that Saudi Arabia’s heavy spending today lays the groundwork for a future less reliant on fossil fuels. Critics counter that the pace of expenditure — particularly through the Public Investment Fund — risks undermining fiscal stability if oil markets remain subdued.
Economists say Riyadh faces limited options: it can borrow, draw down reserves, or scale back its development pipeline. So far, the government appears unwilling to compromise on its diversification goals, even if that means taking on more debt.
The Cost of Transition
Saudi policymakers have long balanced their twin priorities of economic modernization and fiscal restraint. But this phase of the transition may be the toughest yet — a period defined by rapid growth but widening deficits.
For now, the kingdom is pressing ahead, betting that sustained investment will eventually make its economy less vulnerable to oil’s boom-and-bust cycles. Whether that gamble pays off will depend on how long it can finance transformation in a world that’s paying less for the very commodity that built its wealth.
The information provided in this article is for educational purposes only and does not constitute financial, investment, or trading advice. Coindoo.com does not endorse or recommend any specific investment strategy or cryptocurrency. Always conduct your own research and consult with a licensed financial advisor before making any investment decisions.
With over 6 years of experience in the world of financial markets and cryptocurrencies, Teodor Volkov provides in-depth analyses, up-to-date news, and strategic forecasts for investors and enthusiasts. His professionalism and sense of market trends make the information he shares reliable and valuable for everyone who wants to make informed decisions.
