Saudi Arabia has charted its monetary course for 2025, forecasting a budget deficit of 101 billion riyals, which is equivalent to approximately $26.88 billion or about 2.3% of the kingdom's gross domestic product (GDP). This projection was announced on November 26, 2024, by the country's Finance Minister, Mohammed Al Jadaan, during a press briefing held in the capital of Riyadh.
Underlining the government's priorities, Al Jadaan stressed the kingdom's commitment to continuing significant investments tied to its Vision 2030 initiative, which seeks to reduce Saudi Arabia's reliance on oil revenues and broaden its economic base. This endeavor includes numerous high-profile projects aimed at boosting sectors outside oil, particularly tourism and manufacturing. Despite these ambitious plans, the country has faced challenges from declining oil prices and extended production cuts, both of which have significantly impacted its revenue streams.
The anticipated total expenditure for the 2025 budget stands at 1.285 trillion riyals, mirroring previous estimates. This is projected to represent around 30% of GDP over the coming three years. Revenues are projected to be around 1.184 trillion riyals, translating to predictions of fiscal challenges as the economic environment shifts.
Saudi Arabia's Vision 2030 reform program has been received with both optimism and scrutiny, particularly as costs associated with the program have continued to escalate. Crown Prince Mohammed bin Salman, who has been the primary champion of Vision 2030, has indicated the reforms are yielding positive economic indicators, yet there is growing concern around the kingdom's spending strategy, especially with higher-than-expected costs draining fiscal reserves.
The challenges are compounded by significant expenditures tied to Vision 2030 initiatives, such as the ambitious project NEOM, which aims to build the world's largest futuristic city. While NEOM is touted as having transformative potential for the economy, Al Jadaan acknowledged the project’s long-term nature, highlighting the unrealistic expectations some have about its short-term profitability. “If anyone thinks NEOM will be built and profitable within five years, that's foolish,” he noted, emphasizing the need for patience as the project develops over the next half-century.
While some parts of NEOM may begin generating returns sooner, the overarching vision remains expansive and complex, requiring substantial time and resources. Saudi Arabia’s fiscal outlook also hinges on the performance of its state oil giant, Aramco. The government, as the primary shareholder, has heavily relied on Aramco's dividends to support its budget. The company maintained substantial dividends even as profits have dipped recently, which is indicative of the delicate balancing act the Saudi government must perform amid rocky economic conditions.
The projections indicate oil revenue for 2025 could decline by about ten percent compared to the figures from 2024, with estimates pointing toward the oil revenue being hit harder than previously anticipated due to fluctuated prices and supply cuts orchestrated by OPEC+. Experts, such as Justin Alexander from Khalij Economics, suggest if oil output remains restrained, it could mean shorter dividends from Aramco, impacting overall fiscal health substantially.
To mitigate the anticipated $26.88 billion deficit, Al Jadaan confirmed the government will seek both international and local financing options. The overall public debt is expected to rise slightly to reach 1.3 trillion riyals, staying just below 30% of the GDP. This cautious approach has been communicated alongside efforts to stabilize expenditures against the backdrop of potentially declining revenues.
Looking back to 2024, the Saudi finance ministry adjusted its fiscal deficit estimates down to 115 billion riyals, showing signs of resilience and adaptability. A promising recovery is forecast for the economy, projecting GDP growth of 0.8% for 2024, soaring to 4.6% the following year, as the non-oil sectors are set to experience growth due to new initiatives and investments based on the kingdom's strategic plans.
The fiscal plans and the emphasis on diversifying the economy are seen as proactive measures to navigate the uncertainties tied to oil markets. By focusing on projects beyond oil, Saudi Arabia hopes to solidify its long-term economic stability and success. Nonetheless, the short-term realities of fluctuated oil prices and revenue challenges loom large, raising questions about whether the grand plans of Vision 2030 can withstand the pressures of volatile resource-based economics.
