Saudi Arabia's rising debt and spending create fiscal pressure
Saudi Arabia's rising public debt and continued dependence on oil revenues are raising concerns among economists who urge the Kingdom to enforce tighter fiscal discipline to safeguard long-term sustainability.
After accumulating more than $900 billion in overseas SWF assets, the largest Arab economy has stuck to borrowing to keep those assets intact so it will maintain its strong global credit rating while ensuring funds for mega projects, these experts believe.
Over the past 10 years, the price of Saudi crude has averaged around $70 a barrel but the breakeven price needed to balance the Gulf Kingdom's budget has remained above $90 a barrel, which is almost impossible to achieve in the present situation.
'This year for example, the breakeven price is around $94.5, nearly $20 above the current price of Brent crude…this means that maintaining a fiscal balance requires oil prices at that high level or opting for strict fiscal discipline…there is a pressing need to purse structural reforms to lessen the risks of persistent budget deficits,' said Saeed Al-Shaikh, a former Shura (appointed parliament) member and ex-chief economist at the National Commercial Bank, now Saudi National Bank (SNB).
Big challenge
In an Arabic language article published in local newspapers this week, Al-Shaikh said the deficit poses a big challenge to Saudi Arabia's fiscal sustainability.
He said the government has become heavily reliant on borrowing instead of withdrawal from its foreign assets to fund mega projects and other sectors.
'The government believes this will preserve its strong global rating…this underscores the need for increasing non-oil revenues and improving spending efficiency…although this strategy protects the Kingdom's foreign assets and investments, it will increase its debt servicing burden and this should prompt the government to continuously revise and manage the debt ceiling,' Al-Shaikh said.
Saudi Arabia's public debt has nearly doubled over the past seven years to reach around 1.3 trillion Saudi riyals ($347 billion) at the end of March from SAR560 billion ($149 billion) at the end of 2018, the Finance Ministry said in a recent report.
Debt surge
The debt is forecast to surge in the next two years due to a projected budget deficit, boosting its ratio to GDP to one of its highest levels of around 33.5 percent at the end of 2026 from 17.6 percent at the end of 2018, the Saudi Jadwa advisory firm said last week, citing government data.
Saudi Arabia is heavily dependent on oil revenues, which account for more than two thirds of its national income. Given its inability to stem current expenditures, including wages and military spending, which accounts for over 30 percent of the current expenditure, Riyadh has suffered from fiscal gaps in most years.
The strong reliance on oil sales has played havoc with the country's fiscal system. When crude prices dived to as low as $42 a barrel in 2020, its budget deficit climbed to one of its highest levels of $78 billion. It turned into a surplus of about $27.7 billion in 2022, when oil prices rocketed above its breakeven price to nearly $104 a barrel.
During the first quarter of 2025, the Kingdom's shortfall leaped fourfold due to lower oil export earnings. It stood at around SAR59 billion ($16 billion) in the quarter ended March 2025 against $3.3 billion a year before.
Total revenues fell 10 percent to SAR264 billion ($70 billion) while spending swelled by around five percent to SAR322 billion ($86 billion), the Finance Ministry said.
Strong rating
'Saudi Arabia possesses a strong credit rating given its massive assets and can move within a comfortable fiscal space that enables it to borrow from the international market at some of the most competitive rates,' said Ihsan Buhlaiga, a former Shura member.
He said two thirds of Saudi Arabia's public debt is domestic and that is projected to rise as the Kingdom expects the deficit to stay until 2027.
The debt has remained below 30 percent of GDP in the past years but it is expected to break that ceiling to reach 32.3 percent at the end of 2026 and around 33.3 percent at the end of 2027, Buhlaiga said.
'Saudi Arabia needs to continue its efforts to achieve fiscal sustainability by developing a stable income and increasing revenues from its investments…for now, I believe the Kingdom's public debt is still relatively low considering the fact that the average debt-to-GDP ratio in the OECD is nearly 120 percent,' he said.
In March, S&P Global Ratings upgraded Saudi Arabia's rating to 'A+' from 'A' with a stable outlook, citing socioeconomic and capital market reforms.
Strong non-oil growth and rising oil volumes from 2025 will support medium-term growth prospects, the agency said.
Saudi Arabia's National Debt Management Centre welcomed the decision, saying it would allow Riyadh to issue global bonds and sukuk at a more favourable rate.
(Reporting by Nadim Kawach; Editing by Anoop Menon)
(anoop.menon@lseg.com)
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