A neighborhood in the Saudi capital, Riyadh, on Nov. 26, 2024. (Credit: Fayez Nureldine/AFP)
Saudi Arabia has approved a 2025 budget projecting a $26.8 billion deficit, driven by significant spending to support reforms aimed at diversifying the economy and reducing reliance on oil, the world’s top crude export.
The projected deficit, representing 2.3 percent of GDP, is lower than the 2024 deficit estimate of $30.6 billion or 2.8 percent of GDP, according to the budget released by the Finance Ministry. This reflects a reduction in spending, with $342 billion planned for 2025 compared to $358 billion this year.
Saudi Arabia, the largest economy in the Arab world, is pursuing an ambitious and costly reform program called Vision 2030, aimed at reducing its reliance on oil by focusing on business development, tourism and sports.
Questions persist about the feasibility of these ambitious projects. A centerpiece of the program spearheaded by Crown Prince Mohammed bin Salman, Saudi Arabia’s de facto ruler, is the costly Neom project, which includes a futuristic megacity in the desert, a ski resort and luxury tourist complexes along the Red Sea.
Since October 2022, Saudi Arabia has implemented a series of oil production cuts, currently producing approximately 9 million barrels per day (bpd), significantly below its capacity of 12 million bpd.
‘Fluctuations in the global economy’
As a result of these production cuts, the Saudi oil giant Aramco announced earlier this month a 15 percent drop in net profit for the third quarter compared to the same period last year.
The Gulf monarchy posted its first budget surplus in nearly a decade in 2022, boosted by soaring oil prices following Russia's invasion of Ukraine. However, last year marked a return to a budget deficit, which Saudi Finance Minister Mohammed al-Jadaan attributed in late September to "a strategic expansionary policy aimed at supporting economic diversification and sustainable growth."
Deficits of up to 3 percent are "perfectly acceptable ... if the money is spent wisely," al-Jadaan stated at the end of 2023. In December, he announced that the timeline for certain major projects would be pushed beyond 2030, without specifying which ones, while affirming that others would be expedited.
Crown Prince Mohammed bin Salman stated that the budget approved on Tuesday would achieve "sustainable levels of public debt and considerable government reserves, along with a flexible spending policy that enables it to address global economic challenges and fluctuations," according to the official Saudi Press Agency (SPA).
‘50-year project’
The implementation of Vision 2030 is "on the right track," al-Jadaan assured last month, while acknowledging "challenges" that have prompted the government to "recalibrate certain priorities" to avoid "overheating the economy" and allow the private sector time to align with the government's ambitions.
As authorities seem to have adjusted the size and population targets for Neom, al-Jadaan called during a conference on Tuesday for attention to remain on the broader vision rather than individual projects and objectives.
"A project like Neom is a 50-year or longer endeavor, not a one- or five-year project," he stated, adding that “many successful projects have already begun operating effectively, with high quality and great efficiency in spending." He also announced an "increase in military spending" to help create a stable and supportive environment for reforms.
Saudi Arabia’s ambitions require "stability," he said, emphasizing that this necessitates the kingdom having "deterrent capabilities." "And with all the geopolitical tensions in the world, you also need to ensure that you have your own capabilities," he stated.
Saudi Arabia expects its GDP to grow by 0.8 percent in 2024, "driven by an increase in non-oil activities, which are projected to grow by 3.7 percent," the Finance Ministry stated. "This reflects the success of economic diversification, making the Saudi economy less reliant on the oil sector," the same source stated. The country’s economy is projected to grow by 4.6 percent in 2025, according to forecasts.
This article was translated from L'Orient-Le Jour.
