Saudi Arabia’s budget deficit to narrow as spending curbed

• Shortfall forecast at 3.3% of GDP in 2026
• Gap ‘estimated to continue at lower levels’
• PIF has ordered extensive spending cuts

Saudi Arabia expects its budget deficit to narrow next year as the kingdom scales back massive spending plans amid weaker oil revenue and foreign investment.

The Saudi government has forecast a deficit of SAR165 billion ($44 billion), or 3.3 percent of gross domestic product, in 2026, down from an estimated SAR245 billion, or 5.3 percent of GDP, for 2025.

Expenditure is projected at SAR1.31 trillion in 2026, lower than an estimated SAR1.34 trillion this year. Revenue is forecast at SAR1.15 trillion, up slightly on the estimated SAR1.09 trillion for 2025.

“The budget deficit is estimated to continue at lower levels over the medium term due to the government’s adoption of targeted countercyclical spending policies,” the budget statement said.

The reduced expenditure comes as AGBI reported in March that Saudi Arabia’s Public Investment Fund (PIF) had ordered spending cuts across more than 100 of its companies.

The trillion-dollar sovereign wealth fund at the heart of the government’s economic transformation strategy had mandated a minimum 20 percent reduction in 2025 spending across its portfolio, with some budgets cut as much as 60 percent.

Oil revenues have taken a hit, with Brent crude on Wednesday at around $62 a barrel, down 15 percent in the past year. Aramco, the kingdom’s state oil producer, reported in November that profit for the first nine months of 2025 fell nearly 10 percent.

Foreign direct investment has also come in lower than expected, with Saudi Arabia targeting FDI inflows of SAR140 billion for 2025. It received just over a third of that figure in the first half, according to its Vision 2030 programme.

The kingdom hopes annual FDI will reach SAR388 billion by 2030, more than triple last year’s record inflows of SAR119 billion.

“The outlook for revenues has worsened,” said James Swanston, senior Middle East and North Africa economist at Capital Economics in London.

He pointed out that revenue this year is down 13 percent compared to 2024 and while an increase of 5 percent is forecast for 2026, this will be less than originally forecast in the 2025 budget.

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Domestic and external borrowing through public and private channels is expected to continue to finance the budget deficit and repay the principal projected for 2026 as well as the medium term, the budget statement added.

The public-debt balance is expected to reach about SAR1.4 trillion in 2025, or 31.7 percent of GDP, and SAR1.62 trillion, or 32.7 percent of GDP, in 2026.

For 2026, preliminary estimates indicate real GDP growth of 4.6 percent, driven by non-oil activities.

Capital Economics’ Swanston was sceptical of the Riyadh government’s ability to rein in expenditure and narrow the deficit in 2026.

“The government does not have a great track record at sticking to spending plans. With capital spending cuts already underway, it may prove trickier to pursue reductions to current spending or raise taxes in order to boost non-oil revenues (or both). We expect the deficit to widen to 6 percent of GDP in 2026,” he said.