Saudi Arabia Economic Outlook: Budget Deficit Hits Five-Year High
Saudi Arabia’s fiscal position deteriorated sharply at the end of 2025, with the fourth-quarter deficit climbing to SAR 94.9 billion ($25.3 billion) - the widest quarterly gap in five years.
Key Takeaways
- Saudi Arabia posted its widest budget deficit in five years in Q4 2025, with the full-year gap far exceeding official forecasts.
- A sharp drop in oil revenue was the main driver, as crude prices stayed below fiscal breakeven levels.
- Spending remained high due to Vision 2030 projects, pushing public debt higher.
- Non-oil sectors grew strongly, but not enough to fully offset the oil shortfall.
The full-year shortfall reached SAR 276.6 billion ($73.8 billion), far above the government’s original projection and even exceeding its revised estimate.
The widening imbalance reflects a difficult combination: a steep 20% annual drop in oil income and continued heavy spending on economic transformation under Vision 2030. While non-oil sectors expanded at a healthy pace, their gains were not yet sufficient to offset the revenue hit from weaker crude prices.
Fourth-Quarter Pressure Builds
In Q4 alone, total revenue stood at SAR 276 billion, a modest quarterly increase. Oil income recovered slightly from the previous quarter due to higher production, but remained well below year-earlier levels. Non-oil revenue edged higher quarter-on-quarter, yet showed little annual acceleration.
Meanwhile, spending rose to SAR 371 billion, pushing the quarterly deficit 7% higher compared to Q3. Capital expenditure surged, reflecting continued funding for mega-projects such as NEOM and other infrastructure programs.
Full-Year Snapshot
For 2025, total government revenue reached SAR 1.11 trillion, slightly below the previous year. Expenditure climbed to SAR 1.388 trillion, resulting in a deficit roughly 2.4 times larger than in 2024.
Public debt increased to SAR 1.52 trillion, lifting the debt-to-GDP ratio to around 30%, up from 2.8% deficit-to-GDP in 2024 to approximately 5.5% in 2025.
Oil Prices Below Fiscal Comfort Zone
The fiscal strain intensified as Brent crude slid from around $76 per barrel at the start of 2025 to roughly $62 by early 2026 – significantly below the kingdom’s estimated fiscal breakeven level, which the IMF places above $90 per barrel.
Lower prices sharply reduced oil receipts, which remain a central pillar of state income despite diversification progress.
Vision 2030 Spending Continues
Authorities maintained an expansionary fiscal stance to accelerate long-term diversification. Capital spending jumped 18% year-on-year in Q4, with large allocations directed toward:
- Health and social development
- Education
- Military and security, which saw a 5% annual increase
While some non-critical initiatives are reportedly being delayed, the broader strategy remains intact as the government prioritizes structural transformation.
Non-Oil Sector Shows Resilience
Despite fiscal pressure, non-oil activities expanded by 4.9% in 2025 and now account for more than 55% of real GDP. Non-oil revenue reached a record SAR 505.3 billion, though it did not fully compensate for declining hydrocarbon income.
Tourism emerged as a key diversification driver. The wholesale, retail, restaurant, and hotel segment contributed over 11% of GDP in late 2025 and recorded growth above 5%. Tourism-related employment surpassed one million workers, with services exports rising strongly in the first half of the year.
Manufacturing and Industry
Industrial output gained momentum, rising nearly 9% year-on-year in December. Chemicals and food processing led the expansion, while refining activity supported industrial GDP even as upstream oil production fluctuated.
2026 Outlook: Narrowing or Persistent Gap?
Officials expect the deficit to shrink to roughly 3.3% of GDP in 2026, projecting improved oil revenue and stronger returns from diversification efforts. However, several analysts anticipate the shortfall could remain closer to 5–6% depending on global energy markets.
Public debt, still moderate by international standards, could rise toward 40% of GDP by 2030 if deficits continue, according to IMF projections.
To finance the gap, the kingdom has leaned heavily on international debt markets, becoming a major issuer of dollar-denominated bonds. Analysts expect borrowing to continue rather than drawing down the $104 billion in reserves held by the Saudi Central Bank, which authorities appear keen to preserve as a strategic buffer.
For now, the message is clear: Saudi Arabia’s transformation agenda remains on track, but lower oil prices are testing the fiscal model as the kingdom balances diversification ambitions with budget discipline.
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