Saudi Arabia Faces Tough Choices with Oil at $66
Oil Price Drop Hits Budget Hard
Saudi Arabia relies heavily on oil to fund its budget and transformation goals. Brent crude fell sharply, now trading around $66 per barrel. Goldman Sachs expects Brent to average $63 in 2025, while BMI projects $68. Saudi Arabia needs oil above $90 to balance its budget, says the IMF. A $10 drop in oil adds 3% to the deficit, according to Fitch Ratings. Lower Aramco dividends also reduce government revenue significantly. Fitch expects Saudi Arabia’s deficit to reach 4.1% of GDP in 2025.
Global factors and output hikes triggered the current price slump. Weaker oil demand projections for 2025 and 2026 increase pressure on finances.
Fiscal Tightening or More Borrowing
Saudi Arabia may tighten fiscal policy to control its widening deficit. It also plans to raise $37 billion from global and local markets. Moody’s upgraded Saudi Arabia’s credit rating to Aa3 last year.
This upgrade boosts investor confidence in the kingdom’s borrowing ability. The government could use controlled debt to maintain current spending levels. Debt-to-GDP may rise to 35% in 2025, up from 30% in 2024. Strong financial market access helps Saudi Arabia manage tough conditions. The government must weigh debt risks against maintaining spending commitments.
New Taxes Under Consideration
The kingdom may explore new taxes to raise non-oil revenues. Analysts expect possible property or income taxes in the near future. Authorities could also raise existing tax rates for quicker revenue gains.
Introducing new taxes will require planning and public communication. Saudi Arabia has expanded its revenue tools in recent years.
Non-Oil Growth Still a Focus
Saudi Arabia’s non-oil sector grew 4.3% in 2024, beating overall GDP. Finance Minister Al Jadaan remains committed to boosting non-oil growth. Spending cuts, however, could affect momentum in non-oil expansion. A slowdown in public investment may reduce private sector opportunities.
Vision 2030 Projects Get Recalibrated
Some mega-projects like NEOM have seen budget cuts and delays. Projects tied to global events like Expo 2030 remain a priority. The government prioritizes infrastructure linked to international commitments. Economic transformation remains a core part of Saudi Arabia’s agenda.
Saudi Arabia Must Stay Agile
Saudi Arabia faces rising deficits and declining oil revenue. It must balance short-term pressures with Vision 2030 goals. Adaptability will decide Saudi Arabia’s economic resilience in the coming years.