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Saudi Arabia cuts military spending as deficit increases

By Andrew Hammond, Neil Halligan
Members of Saudi Arabia's security forces participate in a parade in Mecca. Military spending decreased by 6.3 percent in the first half of the year Mohammed Torokman/Reuters
Members of Saudi Arabia's security forces participate in a parade in Mecca. Military spending decreased by 6.3% in the first half of the year
  • Budget deficit increases to GDP 2.9%
  • ‘Accelerated progress’ on giga-projects
  • FDI in Saudi Arabia recovers slightly

Saudi Arabia estimates its military spending will be 15 percent lower than budgeted this year, while capital expenditure rises, according to figures released on Monday.

The kingdom’s budget deficit will increase to 2.9 percent of GDP in 2024, according to the preliminary budget statement released by the ministry of finance, as spending on the Vision 2030 economic transformation plan continues. 

Saudi Arabia expects to post an overall deficit of SAR118 billion ($32 billion) this year, which is more than the SAR79 billion projected in its 2024 budget statement in December and up from SAR80.9 billion in 2023. 

Watch Andrew Hammond talk about Saudi Arabia’s fiscal deficit on Dubai Eye radio

Military spending decreased by 6.3 percent in the first half of this year and is expected to drop by 15.4 percent compared to the projected spend, totalling SAR228 billion.

Capital expenditure, which increased 43.2 percent in the first half of 2024 compared to last year, is expected to reach about SAR198 billion, a 4.6 percent increase on the approved budget. 

The ministry said it accelerated progress on several of its large-scale projects, including Red Sea Global, King Salman Park, Green Riyadh and the third expansion of the Holy Mosque.

Operational expenditure increased 7.6 percent in the first half of the year due to a 54.7 percent increase in spending on subsidies.

However, the pre-budget statement said certain government agencies were reclassified to be categorised as subsidies.

Tax revenues increased by 4.5 percent in the six months to June. The ministry expects revenues this year to reach SAR362 billion, an increase of 0.3 percent compared to the budget estimates.

Taxes on income, profits and capital gains was SAR19 billion, a decrease of 18.7 percent on last year, due to a 24.4 percent decrease in corporate income tax revenues. 

On Monday, the government reported that net inflow of foreign direct investment (FDI) into Saudi Arabia fell 7.5 percent year on year in the second quarter of 2024, to SAR11.7 billion, but was a significant 23.4 percent up on the first quarter of the year, latest figures from the General Authority for Statistics show. 

The total inflow so far this year was SAR36.4 billion, which was only slightly up on last year’s SAR36.35 billion, highlighting the government’s struggle to persuade foreign companies to invest in the country.

The failure to meet targets on FDI, which is meant to hit $100 billion per year by 2030, is causing funding problems for the ambitious Vision 2030 development plan, which includes $1.25 trillion worth of giga-projects.

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