Saudi Arabia Revises Growth Forecasts Downward, Projects Wider Budget Deficits
Saudi Arabia has revised its economic growth forecasts downward and is projecting wider budget deficits for the fiscal years 2024 to 2026. This adjustment reflects a combination of factors, including lower oil revenue projections and a commitment to increased government spending to drive economic diversification.
The kingdom now expects real GDP growth of 0.8% in 2024, a significant drop from its previous projection of 4.4%. Growth forecasts for 2025 and 2026 have also been trimmed to 4.6% and 3.5%, respectively, down from 5.7% and 5.1%.
The Saudi government remains committed to accelerating economic and social reforms and implementing transformative spending initiatives to promote sustainable growth, improve social development, and enhance quality of life, as outlined in its Vision 2030 plan. This plan aims to reduce the kingdom’s dependence on oil and develop a more diversified economy.
However, this ambitious agenda comes at a cost. The Finance Ministry is projecting a larger budget deficit of 2.9% of GDP for 2024, wider than the previous estimate of 1.9%. Deficits are also expected to persist in 2025 (2.3%) and 2026 (2.9%), exceeding prior projections.
Saudi Arabia’s fiscal breakeven oil price, the oil price required to balance the government budget, has risen in recent years, reflecting increased spending. The International Monetary Fund (IMF) estimates that this breakeven price is now around $96.20 per barrel for 2024, a 19% increase from the previous year. This figure is significantly higher than the current price of Brent crude, which is hovering around $70 per barrel.
The outlook for oil prices remains subdued in the medium term due to slowing global demand and ample supply. This poses a challenge for Saudi Arabia, as it embarks on ambitious spending programs, including hosting major international events like the 2034 World Cup and Expo 2030, and developing megaprojects like Neom, a futuristic city backed by the Public Investment Fund, the kingdom’s sovereign wealth fund.
Despite the challenges posed by lower oil prices and wider budget deficits, Saudi Arabia has several advantages, including relatively low public debt levels compared to other countries and a high credit rating. These factors provide the kingdom with the flexibility to take on more debt to finance its diversification efforts. Additionally, recent reforms aimed at attracting foreign investment and diversifying revenue streams are showing positive results, with non-oil economic activity demonstrating robust growth in the second quarter.
Key Takeaways:
- Saudi Arabia has lowered its economic growth projections and expects wider budget deficits for the next three years.
- This reflects the impact of lower oil prices and a commitment to increased government spending on economic diversification initiatives.
- The kingdom’s fiscal breakeven oil price has risen significantly, highlighting the challenges posed by lower oil revenues.
- Despite these challenges, Saudi Arabia benefits from relatively low debt levels and recent economic reforms aimed at boosting non-oil sectors.
Saudi Arabia’s economic outlook is characterized by both opportunities and challenges. The government’s commitment to Vision 2030 and its ambitious diversification plans are driving significant investments and economic transformation. However, the reliance on oil revenue and the uncertain global
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