In a year marked by decreasing oil prices and mounting uncertainty in global markets, Saudi Arabia is heading into a new fiscal year with a projected deficit of 165 billion riyals, according to the preliminary 2026 budget statement. Despite the drop in revenues, the figures reflect a clear intention to maintain high levels of spending that underscores the kingdom’s continued bet on economic-transformation projects and the expansion of the non-oil economy.
The government estimates revenues at around 1.147 trillion riyals, compared to expenditures of 1.313 trillion riyals. This gap raises a question frequently posed by investors and analysts: How long can the kingdom sustain a widening fiscal shortfall during a period of low oil prices?
Economist Abdullah Al-Jabali says that the decline in the average price of oil is the primary driver of the widening deficit. “The deficit stems from the drop in the average oil price for 2025 compared to 2024,” he explains. “That decline in the average price per barrel was offset by government borrowing.”
He adds that the government prefers to maintain stable spending levels, noting that “cutting expenditures would have negatively affected the economy” at a time when several non-oil sectors are poised for expansion.
Christian Ulrichsen, a fellow at the Baker Institute and a senior researcher on Middle East affairs, says Saudi Arabia is moving in a direction that is different from its traditional pattern. He explains that the kingdom is breaking from its historical spending cycle, increasing expenditures even during a period of low oil prices. This shift carries a moderate level of risk, he says, because private-sector growth and the broader non-oil economy remain linked—at least partially—to the public sector, which continues to lead major projects.
Ulrichsen notes that the kingdom has the capacity to finance the deficit for several years. But he also points to clear signs of re-evaluating spending on some mega-projects. “Saudi Arabia can sustain the deficit in the near term,” he says. “And although the debt-to-GDP ratio is rising, strong financial fundamentals support borrowing capacity, but there are strong signals of spending cuts for some of the giant projects.”
He adds: “Reforming subsidies will remain extremely intricate. The political sensitivities around any adjustment push the authorities to focus on indirect taxes, especially as VAT revenues become increasingly important.”
On whether Vision 2030 projects can deliver quick returns, Ulrichsen offers a cautious assessment: “Tourism and advanced industries may start generating tangible returns… Mining and critical minerals are promising, but they require more time. It is unlikely that the early emphasis on green hydrogen will continue, and the same may happen with the latest focus on artificial intelligence”.
He adds that some goals of Vision 2030 may extend beyond the target date—especially with the 2034 World Cup now providing “a new time horizon for shaping economic policy.”
Economist Faiz Al-Hamarani offers additional reasons for this fiscal approach. He explains that “despite the challenges, the kingdom has been able to manage oil-price volatility at the $60 level through structural transformation, which has led to a significant improvement in non-oil activity.”
He notes that the 2026 deficit could shift if oil prices rise or if non-oil revenues improve, pointing out that “the 2025 deficit reached 245 billion riyals due to declining revenues and continuing spending levels.”
After the budget’s approval, Saudi Finance Minister Mohammed bin Abdullah Al-Jadaan said, “The 2026 budget strikes a balance between fiscal strength, the sustainability of public finances, and support for economic growth.” Ministry figures show a 6% reduction in capital spending and the transfer of some investment activities to the Public Investment Fund (PIF).
The government expects real GDP growth of 4.6% in 2026, driven primarily by 4.8% growth in non-oil activities, along with improvements in foreign direct investment and lower unemployment.
Abdullah Al-Jabali notes that the phased activation of major projects such as the Red Sea and Diriyah has begun contributing to covering some operating costs. “Each phase covers its own expenses and contributes to financing what follows,” he says.
He adds that lower spending on goods and services reflects the outcomes of privatization, noting that higher-education’s share of the budget has declined over the past 10–15 years from about 24% to 15%.
Eckart Woertz of the GIGA Institute says that a prolonged period of low oil prices poses greater challenges: “If the decline in oil prices lasts longer, the kingdom may need to repatriate assets from abroad or increase borrowing.”
He adds that some Vision 2030 projects remain in a cost-intensive phase rather than a revenue-generating one, while the mining and hydrogen sectors show long-term potential.
Saudi Arabia enters 2026 with an expanded fiscal posture—betting on fast-moving non-oil growth and a private sector racing to keep pace with mega-projects. While government statements convey confidence in the flexibility of public finances, international assessments warn that the coming period will test the kingdom’s ability to balance its deficit, especially if the current oil-price cycle persists longer than expected.
Sukina Ali
A Saudi writer, researcher, and TV presenter
