Oil price fall poses spending dilemma for Saudi Arabia

May 5, 2025, 12:59 PM

Workers at a Saudi Aramco onshore rig. Excluding the oil major, Saudi Arabia has about $600bn of domestic assets it could sell — Workers at an Aramco onshore rig. Excluding the oil major, Saudi Arabia has about $600bn of domestic assets it could sell

Plenty of domestic assets to spin off
Oil price will stress-test economy
$1.4 trillion foreign assets

Saudi Arabia has various assets it could sell as the drop in oil prices pushes up the country’s 2025 budget deficit, economists have said.

The country could also opt to plug the gap by issuing more debt or altering its spending plans. Saudi Arabia’s debt-to-GDP ratio is only 29 percent, according to S&P Global Ratings, so it is in little danger of becoming overly indebted – although the oil sector’s worsening supply-demand dynamics pose financial headaches.

“There are questions and concerns in the investor community about how willing or able is Saudi Arabia to pull back on its big investment projects,” says Farouk Soussa, Mena economist at Goldman Sachs in London.

“If Saudi Arabia is less willing or less able to reduce spending, then it is facing very large deficits. There are pockets of liquidity across the public sector that the government can draw upon.”

Saudi Arabia has about $2.5 trillion in public assets including Saudi Aramco. Excluding the state-owned oil giant, the country has about $600 billion of domestic assets it could sell, Goldman Sachs estimates.

“These are holdings in domestic companies, including banks and petrochemical producers. There are plenty of domestic assets that could be spun off and do IPOs or additional stake sales if it’s a company that is already listed,” adds Soussa.

“Saudi Arabia could raise tens if not hundreds of billions of dollars easily.”

In addition, Saudi Arabia also holds about $1.4 trillion in foreign assets of which $400 billion are foreign currency reserves, Goldman Sachs estimates.

The country’s 2025 budget, published last November, forecasts it will generate SAR1.18 trillion in revenue, of which 68 percent, or SAR804 billion, would come from “other revenues”, probably mostly hydrocarbon sales. The proportion underlines the importance of oil and gas despite Saudi Arabia’s extensive economic diversification efforts.

Saudi Arabia plans to spend SAR1.29 trillion this year, creating a deficit of SAR101 billion. The price of Brent crude has fallen 18 percent this year, so the budget shortfall will probably be substantially larger than the government estimated should spending plans remain unchanged.

The International Monetary Fund, which has slashed its 2025 economic growth forecast for Saudi Arabia by more than one third, forecasts the country’s breakeven oil price is about $92.

Last year’s deficit was SAR116 billion, with oil sales providing 60 percent – or SAR757 billion – of state revenue. Brent crude averaged $80.5 per barrel in 2024, but the US government forecasts Brent will average only $68 this year.

Saudi credit default swaps hit a 54-month high of 99.5 in mid-April before retreating to 87 as of May 1. That is 34 percent higher than on December 31, indicating that the risk of the kingdom defaulting on its debts has increased materially.

“Investors wonder about the extent to which the kingdom can maintain spending,” says Mohamed Abu Basha, head of macroeconomic analysis at EFG Hermes in Cairo.

“To do so, it will have to borrow more, so there are questions around how big its deficits will be and what options the government has.”

These jitters are also evident on Saudi Arabia’s stock index, which is down 4.2 percent this year.

“One reason Saudi stocks were sold is because the kingdom’s diversification strategy and commitment to diversification hasn’t really been tested in an oil price down cycle,” says Akber Khan, acting chief executive of Al Rayan Investment in Doha.

“Investors outside of the region seem to have less confidence in the resilience of this strategy.”

Yet Saudi Arabia has more diversified income sources than in previous oil bear markets. For example, it now levies 15 percent VAT.

“None of this is to say Saudi won’t be affected by a sustained drop in oil prices – it will recalibrate spending, but that would likely be to a lesser degree than previously,” says Khan.

“Recalibration can include reducing the scope of existing projects but also value engineering to complete at a lower cost.”