Saudi Arabia Slashes Growth Forecasts Amidst Wider Budget Deficits
Tuesday, Oct 1, 2024 9:56 am ET
Saudi Arabia, the world's largest oil exporter, has recently revised its economic growth projections and budget deficit estimates for the fiscal years 2024 to 2026. The kingdom's Ministry of Finance published a pre-budget report on Monday, October 1, 2024, indicating a significant reduction in growth expectations and an increase in projected budget shortfalls.
The report revealed that real gross domestic product (GDP) is now expected to grow by 0.8% in 2024, a dramatic drop from the previous estimate of 4.4%. Additionally, the GDP growth projection for 2025 has been cut from a previous estimate of 5.7% to 4.6%, while the outlook for 2026 has been trimmed from 5.1% to 3.5%. The Finance Ministry also projected a wider budget shortfall of about 2.9% of GDP for 2024, compared with a previous projection of 1.9% for the year. It predicted deficits of 2.3% and 2.9% in 2025 and 2026, respectively, also wider than previous estimates.
The kingdom's fiscal breakeven oil price, which is the price needed for a barrel of crude to cost in order to balance its government budget, has increased in recent months and years. The International Monetary Fund (IMF) estimates that the fiscal breakeven figure for 2024 is around $96.20 per barrel, marking a roughly 19% increase on the year before. This figure is also about 36% higher than the current price of a barrel of Brent crude, which was trading at around $70.70 as of Tuesday afternoon.
Oil prices are expected to remain subdued in the medium term amid slowing demand and increased supply globally. Saudi Arabia is hosting major international events, such as the World Cup 2034 and Expo 2030, which will require steep spending. Additionally, the kingdom is building out multi-trillion dollar megaprojects like Neom, backed by its mammoth sovereign wealth fund, the Public Investment Fund. These factors contribute to the increased spending and budget deficits.
Saudi Arabia's public debt has grown from around 3% of its GDP in the 2010s to roughly 28% today, according to the IMF. While this is still low by international standards, the kingdom's relatively low debt level and high credit rating make it easier for it to take on more debt as needed. The kingdom has also rolled out a series of reforms to boost and de-risk foreign investment and diversify revenue streams.
In conclusion, Saudi Arabia's revised growth projections and increased budget deficits reflect the challenges the kingdom faces in balancing its economy amidst lower oil prices and increased spending on infrastructure projects and international events. As the world's largest oil exporter, Saudi Arabia's economic performance has a significant impact on global markets and investors. The kingdom's ability to manage its widening budget deficits without compromising its economic development plans will be crucial for its long-term fiscal stability.
The report revealed that real gross domestic product (GDP) is now expected to grow by 0.8% in 2024, a dramatic drop from the previous estimate of 4.4%. Additionally, the GDP growth projection for 2025 has been cut from a previous estimate of 5.7% to 4.6%, while the outlook for 2026 has been trimmed from 5.1% to 3.5%. The Finance Ministry also projected a wider budget shortfall of about 2.9% of GDP for 2024, compared with a previous projection of 1.9% for the year. It predicted deficits of 2.3% and 2.9% in 2025 and 2026, respectively, also wider than previous estimates.
The kingdom's fiscal breakeven oil price, which is the price needed for a barrel of crude to cost in order to balance its government budget, has increased in recent months and years. The International Monetary Fund (IMF) estimates that the fiscal breakeven figure for 2024 is around $96.20 per barrel, marking a roughly 19% increase on the year before. This figure is also about 36% higher than the current price of a barrel of Brent crude, which was trading at around $70.70 as of Tuesday afternoon.
Oil prices are expected to remain subdued in the medium term amid slowing demand and increased supply globally. Saudi Arabia is hosting major international events, such as the World Cup 2034 and Expo 2030, which will require steep spending. Additionally, the kingdom is building out multi-trillion dollar megaprojects like Neom, backed by its mammoth sovereign wealth fund, the Public Investment Fund. These factors contribute to the increased spending and budget deficits.
Saudi Arabia's public debt has grown from around 3% of its GDP in the 2010s to roughly 28% today, according to the IMF. While this is still low by international standards, the kingdom's relatively low debt level and high credit rating make it easier for it to take on more debt as needed. The kingdom has also rolled out a series of reforms to boost and de-risk foreign investment and diversify revenue streams.
In conclusion, Saudi Arabia's revised growth projections and increased budget deficits reflect the challenges the kingdom faces in balancing its economy amidst lower oil prices and increased spending on infrastructure projects and international events. As the world's largest oil exporter, Saudi Arabia's economic performance has a significant impact on global markets and investors. The kingdom's ability to manage its widening budget deficits without compromising its economic development plans will be crucial for its long-term fiscal stability.