With lower oil revenues driving Saudi Arabia’s twin budget and current account deficits, the government needs to push ahead with its planned fiscal consolidation to keep the public debt-to-GDP ratio in check, Capital Economics’ James Swanston said in a research note. The Kingdom risks an even wider budget deficit next year — particularly with continued pressure from lower oil revenues — without these measures, Swanston says.

REMEMBER- Saudi’s budget deficit widened to SAR 88.5 bn in 3Q in 2025, up from SAR 34.5 bn in 2Q, according to the Finance Ministry’s quarterly budget performance report released last week. The highest-in-five-years deficit was driven by a 13% y-o-y decline in revenues during the quarter, while expenditures increased 6% y-o-y. Oil revenues, which represented around 56% of the total government revenues in 3Q, went down by 21% y-o-y, while non-oil revenues were up by 1%, supported by increased tax collections. The Finance Ministry expects the budget deficit to narrow by 2.0 percentage points in 2026 to 3.3% of GDP, compared to the 5.3% deficit the government is forecasting for 2025.

Without fiscal consolidation measures in place, Saudi Arabia’s budget deficit will widen further to 6.0% of GDP in 2026, while the current account deficit will also be on track to widen to 4.5%, according to Swanston. The World Bank also expects Saudi Arabia’s fiscal deficit to widen next year on the back of oil prices.

This forecast comes as Capital Economics expects weaker oil revenues to persist, with oil prices expected to average USD 55 / bbl and oil export receipts forecast to drop by 4-5% of GDP. That’s below the IMF’s forecast, which sees oil prices dropping to USD 66 / bbl in 2026 before stabilizing in that range through to 2030.

Non-oil sector also seen softening: “Weaker oil export receipts will reinforce the need for fiscal consolidation and will more than offset any boost from looser monetary policy, resulting in softer non-oil GDP growth,” Swanston previously said.

The upside: Despite the twin deficits, the Kingdom maintains a strong financial position thanks to the substantial FX assets held by Sama and PIF, Swanston notes. With this strong position in hand, the government could have the financial capacity to draw on more debt, which could risk its debt-to-GDP ratio, already projected to reach 40% of GDP by 2027.

IN CONTEXT- The Kingdom plans to continue utilizing debt markets to meet its financing needs. This strategy is supported by its strong fiscal foundation, which enables it to preserve its reserves and utilize “additional fiscal space” to bridge funding deficits. The Finance Ministry will implement an annual medium-term borrowing plan to enhance debt sustainability and broaden its funding base through access to global debt markets.

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