A government statement stated that Saudi Arabia expects its fiscal deficit to increase to nearly 3% of GDP in 2024 as it increases spending to spur growth and achieve the goals of its “Vision 2030” economic transformation plan.
In contrast to the 79 billion riyals predicted in the 2024 budget statement released in December 2023, the Kingdom expects to post a fiscal deficit of 118 billion riyals (USD 32 billion) this year, or 2.9% of GDP, according to a preliminary budget statement.
Spending has increased by Saudi Arabia, the world’s largest oil exporter, despite voluntary reductions in oil production and lower oil prices. By 2025, it anticipates reporting a 2% GDP deficit.
“We have more revenues than what was expected…the spending is where the increase happened,” Naif al-Ghaith, Riyad Bank’s chief economist said, as reported by Zawya.
To reduce its reliance on oil, Saudi Arabia is currently implementing a significant economic diversification agenda known as “Vision 2030,” which will cost hundreds of billions to create new growth sectors and more stable sources of income.
The International Monetary Fund (IMF) estimates that the largest economy in the Arab world needs oil prices to be close to USD 100 a barrel in order to balance its budget.
The government predicted in September 2024 that real GDP would grow by 0.8% this year, up from 2023’s contraction. It is anticipated that GDP growth will pick up significantly to 4% in 2025, partly because of higher oil production.
In 2024, it is projected that government spending will amount to 1.36 trillion riyals, while total revenue will be 1.24 trillion riyals.
This year’s budgeted revenue was 11.7 trillion riyals in December, while spending was estimated to be 12.5 trillion riyals.
The government estimates that in 2025, revenues will total 11.8 trillion riyals and expenses will total 12.9 trillion riyals. Over the following three years, spending is expected to account for roughly 30% of GDP.
The government projected in a recent statement that non-oil activities would grow by 3.7% in 2024, up from an average growth of nearly 6% in the previous three years.
Meanwhile, the Kingdom’s non-oil private sector business conditions strengthened in September 2024, driven by improved sales momentum and rising new orders.
The Riyad Bank Saudi Arabia PMI survey, compiled by S&P Global, showed the Gulf nation’s Purchasing Managers’ Index reached 56.3 in September 2024, up from 54.8 in August.
S&P Global noted that any PMI reading above 50 indicates growth in the non-oil sector, while readings below 50 signal contraction.
Naif Al-Ghaith, chief economist at Riyad Bank, said, “The rise in Saudi Arabia’s PMI to 56.3 shows the highest level in four months, highlighting a notable acceleration in non-oil private sector growth. This uptick was primarily driven by increased output and new orders, reflecting the sector’s expanding activity.”
The analyst added, “Businesses are responding to stronger domestic demand, which plays a critical role in reducing Saudi Arabia’s dependence on oil revenues.”
Al-Ghaith also emphasised the significance of non-oil sector growth, given current crude production cuts and declining global oil prices. To stabilise the market, the Kingdom reduced its oil output by 500,000 barrels per day in April 2023, with the cut extended until December 2024.
“As oil revenues come under pressure, the robust performance of the non-oil private sector serves as a buffer, helping to mitigate the potential impact on the country’s economic health. The diversification of revenue streams is crucial for maintaining growth amid fluctuating oil markets,” Al-Ghaith said.
“The report also indicated that improved business conditions supported employment growth, though companies struggled to find skilled workers in September. Despite strengthening demand, firms expressed concerns over competitive pressures, which dampened future activity expectations,” Arab News stated.
S&P Global noted that higher competition led to a reduction in selling prices for the third consecutive month, despite rising business costs.
“Rising output levels not only enhance the competitiveness of Saudi businesses but also drive forward developments aimed at expanding private sector participation in the economy. This shift provides a more stable foundation for long-term growth, making the economy less vulnerable to oil price volatility,” Al-Ghaith continued.
According to the report, growth was robust and widespread across monitored segments of the non-oil segment of the Saudi economy, with respondents citing higher demand and new project approvals.
“By expanding output across key non-oil industries, Saudi Arabia is better positioned to navigate the challenges of oil market fluctuations, ensuring a more sustainable and diversified economic future,” Al-Ghaith concluded.