- Vision 2030 to diversify the economy
Saudi Arabia’s revenues have been hit in recent years by falling oil prices crude on global markets and by the Saudi government’s decision to voluntarily reduce the country’s oil production, although it continues to increase spending to promote growth and implement an economic transformation plan.
According to Mohammed Al-Jadaan, Minister of Finance of Saudi Arabia, during the press conference announcing the new budgets, the fiscal deficit in 2025 will amount to around 2.3% of gross domestic product (GDP), which has increased by 4.6% last year. Furthermore, planned spending is in line with what was expected last September and will amount to around 30% of GDP over the next three years.
Mohammed Al-Jadaan also stated during this press conference that “The budget for 2025 aims to continue the expansion of strategic spending for development projects in line with sectoral strategies and Vision 2030 programs.”
Spending, approved in the new budget, is expected to decline to 1.23 trillion Saudi rials (equivalent to $342.7 billion) as authorities struggle to adapt to recent fluctuations in oil prices.
Vision 2030 to diversify the economy
To adapt to these declines, Saudi Arabia has already been working on projects such as Vision 2030, which aims to diversify and strengthen the Saudi economy by developing sectors other than oil. One of them is the logistics sector, which is considered fundamental for diversifying the economy and strengthening GDP.
Saudi Arabia has made significant investment and spending commitments to fund the Vision 2030 program to grow the economy away from oil. Monica Malik, chief economist at Abu Dhabi Commercial Bank, said that the government sought to use all fiscal space to support the diversification program.
Prince Mohammed also said that “the positive economic indicators are a continuation of the ongoing reforms in the Kingdom in light of Vision 2030.” However, the Saudi government has started to scale back some projects due to fluctuations in oil prices.
The oil market
However, the Saudi finance minister said that “financial solvency has the flexibility to withstand falling crude oil levels” and that the Saudi economy has reached a point where oil price volatility no longer affects it as much as before. The difference, he added, is that spending expectations are supported by oil revenues.
Aside from oil, Aramco is a key pillar of the economy at present, as Saudi Arabia is the company’s largest shareholder and it will remain to be seen whether it continues to pay generous dividends at current levels.
In 2024, during the third quarter, the company maintained distributions to shareholders, despite declining profits. Currently, the Saudi government has no plans for additional profits from Aramco, which finances many Vision 2030 projects.
Saudi Arabia, which is the largest Arab economy, needs a price of more than $98 per barrel of Brent, according to the International Monetary Fund, to break even. Furthermore, the finance minister expects public debt to reach around 30% of GDP by 2025, up from 29.3% last year.
