Saudi Arabia on Tuesday approved a 2025 budget forecasting a deficit of $26.8 billion, amid high spending to support reforms aimed at diversifying the economy and reducing dependence on oil in the world’s top crude exporter.
« Vision 2030 »
The forecast deficit, which represents 2.3% of gross domestic product (GDP), is down from the 2024 deficit estimated at $30.6 billion, or 2.8% of GDP, according to the budget published by the Ministry of Finance. This reflects a drop in spending: $342 billion planned for 2025 compared to $358 billion this year.
Saudi Arabia, the Arab world’s largest economy, is carrying out a costly reform program called “Vision 2030”, aimed at reducing its dependence on black gold by focusing on the development of business, tourism and sport. There are persistent doubts about the viability of these ambitious projects.
The flagship of this program led by the crown prince and de facto leader of Saudi Arabia, Mohammed bin Salman, the expensive Neom project includes a futuristic megalopolis in the middle of the desert, a ski resort and luxurious tourist complexes along the Red Sea .
At the same time, following a series of oil production cuts dating back to October 2022, Saudi Arabia is currently producing around 9 million barrels per day (Mb/d), well below its capacity of 12 Mb/d. /j.
“Fluctuations in the global economy”
As a result of these production cuts, Saudi oil giant Aramco announced earlier this month a 15% drop in its net profit in the third quarter compared to the same period last year.
The Gulf monarchy achieved its first budget surplus in almost ten years in 2022, boosted by the surge in crude prices in the wake of the Russian invasion of Ukraine.
But last year marked the return to a budget deficit presented at the end of September by Saudi Finance Minister Mohammed al-Jadaan as the result of “a strategic expansionist policy to support economic diversification and sustainable growth”.
Deficits of up to 3% are “entirely acceptable (…) if the money is correctly spent”, Mr. Jadaan estimated at the end of 2023. In December, he indicated that the timetable for certain major projects would be pushed back beyond 2030, without specifying which ones, while affirming that others would be accelerated.
The crown prince, for his part, declared that the budget approved Tuesday would make it possible to achieve “sustainable levels of public debt and significant government reserves, in addition to a flexible spending policy that allows it to face challenges and fluctuations of the world economy”, reported the official SPA agency.
An increase of 0.8% in GDP in 2024
The achievement of Vision 2030 is “on the right track”, assured Mr. Jadaan last month, nevertheless recognizing the “challenges” which pushed the government to “recalibrate certain priorities” in order to “not overheat the economy” and give to the private sector to align with government ambitions.
While authorities appear to have reduced Neom’s size and population targets, Mr Jaddan called during a conference on Tuesday to focus on the overall vision and not individual projects and targets. “A project like Neom is a 50-year or more project, not a one- or five-year project,” he said adding that “many successful projects have started operating successfully, with high quality and great efficiency in spending.
He also announced an “increase in military spending” to help create a stable and favorable environment for reforms.
Saudi Arabia’s ambitions require “stability”, he said, asserting that for this the kingdom needs “deterrent capabilities”. “And with all the geopolitical tensions in the world, you also need to make sure you have your own capabilities,” he said.
Saudi Arabia estimates that its GDP will increase by 0.8% in 2024, “driven by an increase in non-oil activities, which are expected to grow by 3.7%”, the ministry said. “This reflects the success of economic diversification, making the Saudi economy less dependent on the oil sector,” says the same source. Finally, the country’s economy is expected to grow by 4.6% in 2025, according to forecasts and reported by Atalayar.
