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Saudi Arabia expects a budget deficit for this year and up to 2026 after revising earlier predictions of a surplus, as it funnels money into gigaprojects and expanding its non-oil economy.
In a preliminary budget statement for 2024 released at the weekend, the kingdom also pared its growth forecast for this year. It now predicts 0.03 per cent growth overall — with 5.9 per cent growth in the non-oil economy — after being among the world’s fastest-growing economies last year with almost 9 per cent GDP growth on the back of a petrodollar windfall.
The statement said total revenues this fiscal year, which runs from January to December, were expected to be SR1.18tn ($314bn), with expenditure estimated at SR1.26tn. Saudi Arabia is also expected to post a deficit next year and through 2026, revising past predictions of annual surpluses until then, while forecasting 4.4 per cent GDP growth next year.
Inflation and supply chain problems had hampered growth, the statement said, but “the government is working to expand government spending that has a transformative effect, while maintaining fiscal sustainability in the medium and long term”.
The world’s biggest oil exporter is undergoing reforms to diversify its economy beyond oil revenues, which are increasingly used to fund the sovereign Public Investment Fund as the country steers plans to expand sectors from tourism to electric vehicle manufacturing.
The plans remain reliant on petrodollars, which make up about 90 per cent of the kingdom’s revenues. Saudi Arabia led Opec+ into cutting production last year as oil prices dropped from highs of about $120 a barrel, sparked by Russia’s full-scale invasion of Ukraine last year and the post-pandemic global recovery. They are about $90 now, although prices have started to rise again.
Finance minister Mohammed al-Jadaan has previously said Riyadh would maintain fiscal discipline to break the oil-fuelled boom and bust cycles of the past.
“We need to make sure that we have predictable, sustainable expenditure that does not fluctuate with oil prices,” he told the Financial Times last year. “Otherwise we will go back to the previous [practices] when you have more revenues you spend more, and when you don’t have revenues you spend less, which is very difficult for the economy.”
In the past, high oil prices have led to heavy government spending, with surpluses deposited in the central bank. Spending shrank when prices fell, often resulting in halted projects and delayed payments to contractors.
The preliminary budget statement said the government “seeks to increase the pace of structural and economic reforms, reflected in the budget for fiscal year 2024”.
The plans include gigaprojects such as the planned futuristic city called Neom and tourism developments, although critics have questioned the feasibility of the proposals.
The government is also seeking to attract more foreign direct investment while positioning itself as a regional financial and logistics hub. It has given companies an end of the year deadline to shift their regional headquarters to the kingdom or lose out on government contracts.