Why Saudi Arabia expects public debt to rise

December 23, 2024, 2:30 PM

Workers on a construction site near Riyadh. Saudi Arabia is spending according to actual development requirements that are needed within its Vision 2030, said one expert — Workers on a construction site near Riyadh. An expert said that Saudi Arabia is spending according to actual development requirements that are needed within its Vision 2030

Possible $100bn rise by 2028
Borrowing policy to continue
Building up financial reserves

Saudi Arabia expects its public debt to steadily rise in the next three years, despite the massive financial reserves controlled by the central bank and the Public Investment Fund (PIF).

Estimates by the Saudi Finance Ministry show that public debt will swell by around SAR375 billion ($100 billion) between the end of 2024 and the end of 2027 as the country, the world’s dominant oil exporter, sticks to its fiscal policy of borrowing to shore up the budget deficit instead of withdrawing from those reserves.

Observers say the Gulf state, the largest Arab economy, is pushing ahead with plans to build up assets and maintain a strong liquidity cushion.

“Saudi Arabia is determined to continue building up its financial reserves… that is the main reason why it opts for borrowing rather than relying on those reserves to cover its budget deficit,” says Ihsan Buhlaiga, a former Saudi Shura Council member and a well-known economist and author of several books on the Saudi economy.

“I can tell you that the budget deficit in Saudi Arabia is not real… it is an optional deficit, because the government can achieve a balance between spending and revenue on an annual basis.

“But it is spending according to actual development requirements that are needed within its Vision 2030,” Buhlaiga says.

Finance Ministry figures show that public debt is projected to reach SAR1,199 billion at the end of 2024 before climbing to nearly SAR1,570 billion by the end of 2027.

The deficit is forecast at SAR101 billion in 2025 and set to hit SAR140 billion by 2027, according to the report, which said the shortfall’s ratio to GDP would dip from 2.8 percent in 2024 to 2.3 percent in 2025, before rising to 3 percent in 2027.

Jadwa Investments Company, a Riyadh-based investment and research firm, said in a report this week that Saudi public debt to GDP remains relatively low and within the OECD limits.

“This remains a modest debt burden by international standards." In addition, the government maintains substantial deposits at Sama, the Saudi central bank, Jadwa said.

It said the budget estimates that government reserves, mainly in Sama, would remain stable at around SAR390 billion by the end of 2024 and that then government also has some current account deposits at Sama.

“These deposits at Sama represent a sizeable liquidity buffer, equivalent to around 10 percent of GDP, in excess of $100 billion,” the Jadwa report said.

“Although the level of these deposits declined up to 2021, the government seems determined to preserve this liquidity buffer at its current nominal level. The budget projections for 2026-2027 would see government debt rising further, but remaining below 35 percent of GDP.”

A report by the London-based company Capital Economics said it expects Saudi oil output to rise by only around 5 percent by the end of 2025, while it expects crude prices to slide back to nearly $70 a barrel.

“State oil receipts will be weaker and will add to the need to keep fiscal policy tight. We expect the Saudi economy to grow by 2.8 percent in 2025, which is below consensus,” the report said.

The Saudi finance minister, releasing the 2025 budget in November, projected spending at SAR1,285 billion in 2025, well below the 2024 budgeted expenditure of SAR1,345 billion.