Saudi deficits set to persist through 2029 as borrowing costs become the pressure point

Saudi Arabia has budgeted for a deficit in every year through 2029, with no narrowing across the four-year window. The Finance Ministry’s preliminary budget statement (pdf) puts next year’s shortfall at SAR 191 bn, on revenues of SAR 1.2 tn against spending of almost SAR 1.4 tn, followed by SAR 177 bn in 2028 and SAR 192 bn in 2029. “This year will be the 12th deficit in the previous 13 years, and the PBS projections see no end in sight,” Khalij Economics GCC economist Justin Alexander tells EnterpriseAM.

The 2027 shape: Spending is set to fall SAR 43 bn from the updated 2026 estimate of SAR 1.4 tn, with revenues rising to around SAR 1.2 tn. “The Kingdom appears to face a more complex fiscal equation next year,” XTB financial analyst Milad Azar (LinkedIn) says.

How it gets funded: Through a mix of bonds, sukuk and loans across domestic and international markets, alongside alternative financing tools for infrastructure and other projects. The buffers behind that are substantial — external debt stood at SAR 624.9 bn in 2Q 2026 against reserve assets of SAR 1.85 tn, up 8.1% y-o-y, giving reserves 284% cover.

The cost is what changes: The Kingdom has room to keep borrowing in the near term and “has a broad range of financing options and significant financial buffers,” Oxford Economics lead economist Akanksha Samdani says, “however, the cost of borrowing is becoming more important as global interest rates remain higher and debt levels rise.” Azar expects a more selective approach if geopolitical shocks persist, with the challenge being to manage borrowing costs without giving up fiscal sustainability.

Where the space goes: “Although the deficit levels and debt stock remain moderate by international standards, fiscal space is gradually eroding, and the crisis of the current war(s) could further exacerbate this over the medium term, given the impact on revenue, expenditure and financing costs,” Alexander said. If deficits stay elevated for several years, rising debt and a gradual drawdown in reserves would leave less room to absorb the next shock, Samdani said.

The statement gives no standalone allocation for military or defense spending. Azar expects the Kingdom to keep spending on security, critical infrastructure and the energy sector while continuing to fund its transformation goals. “It will reflect both security needs and a broader push to develop domestic industrial capacity,” Samdani said. Localization could support manufacturing and investment, she added, though higher defense spending creates trade-offs with infrastructure and human capital. “The key will be how spending is prioritised and how much of it supports domestic economic activity.”

The diversification side is working: Non-oil revenues reached SAR 505 bn in 2025, now covering 36% of government spending and worth around 15% of nominal GDP, up from 9% a decade ago. “There is clear progress in diversifying its revenue sources,” Azar said, though from a fiscal perspective the capacity to absorb a large and prolonged oil shock remains limited. Samdani said disruption could weaken private investment, external demand and business confidence and raise infrastructure costs, with the government likely to keep backing priority projects while “potentially stretching timelines or prioritizing projects with stronger economic or revenue returns.”

The question underneath all of it: “The promise of Vision 2030 has been that the diversification initiatives financed through borrowing at the national and entity level will more than pay for themselves in the medium term,” Alexander said. “This is not yet visible in the four-year window of the pre-budget statement, so it would be interesting to see longer-term fiscal projections into the 2030s.”