Saudi Arabia’s public debt could reach higher levels than previously expected by 2030: London-based research outfit Capital Economics sees the Kingdom’s debt-to-GDP ratio reaching 50% by 2030 and 60% by 2033, with the firm expecting oil prices to see a more significant dip than the government has pencilled into its plans, Capital Economics’ James Swanston said in a report seen by EnterpriseAM.

IN CONTEXT- The forecast comes following the approval of the Kingdom’s borrowing plan for FY 2025 earlier this month, which outlined a requirement for some SAR 139 bn in new public debt — and a subsequent USD 12 bn international bond issuance from the Finance Ministry, which was 3x oversubscribed. The government’s targeted amount for new public debt is intended to bridge an anticipated SAR 101 bn budget deficit penciled in for the new fiscal year, in addition to covering some SAR 38 bn required to meet principals’ repayments for loans maturing during the period.

The gov’t doesn’t see deficits as an inherently bad thing: As long as the returns on public spending exceed the cost of borrowing, deficits of SAR 100-140 bn can be beneficial, Finance Minister Mohammed Al Jadaan told Al Arabiya late last year. The Kingdom looks to benefit from the interest rate reversal to increase borrowing, signalling fiscal expansion in 2025, 2026, and 2027.

Capital Economics isn’t as confident, however: “As things stand, the Saudi government debt burden stands at 29.6% of GDP and doesn’t appear concerning – this is far lower than the EM average of around 70%. But if we’re right in expecting oil prices to fall back in the coming years, and by more than the government has pencilled into its plans, the budget deficit will widen and the debt ratio will resume its rise,” Swanston writes.

The firm laid out multiple possible scenarios, which it constructed based on different possible levels of oil prices by the end of the decade.

  • In its central scenario, Capital Economics sees oil prices gradually falling back from USD 80 / bbl today to around USD 55 pb by 2027-2030 — which, in turn, would push the Kingdom’s public debt-to-GDP ratio to 50% of GDP by 2030 and 60% by 2033.
  • If oil prices were to dip even further to USD 40 / bbl, Saudi’s public debt-to-GDP ratio would more than double to nearly 90% by 2030.
  • If the Kingdom’s oil output was increased to 12 mn bbl / d (35% higher than today) and oil prices were USD 40 / bbl, the debt-to-GDP ratio would go up to 80% by the end of the decade.

ICYMI- Oil prices are expected to be “weak” in 2025: A Reuters poll conducted in October sees oil prices remaining “broadly weak” at a USD 76.8 / bbl average this year, down from an average of USD 83 / bbl in 2024, according to the Finance Ministry’s budget statement for FY 2025 (pdf). Meanwhile, S&P Global sees oil prices reaching an average of USD 75 / bbl over the next two years, the firm’s Global Head of Islamic Finance Mohamed Damak told Al Arabiya earlier this month.

The solution, for Capital Economics, is to slash the Kingdom’s public spending: “The overarching message for the Saudi government is that if it is to live with lower oil prices, fiscal policy will need to be kept tight in order to prevent a rapid climb in public debt,” Swanston wrote. “Under our central scenario, a fiscal squeeze equivalent to at least 4% of GDP would be required to stabilise the debt-to-GDP ratio at 40% by 2030.” It seems the kingdom has no other option but slashing its public debt with the government indicating that it won’t be raising taxes to meet the shortfall.

Far less optimistic than other forecasts: Credit rating agency Moody’s sees the Kingdom’s public debt hitting 35% of GDP in 2030, up from 26% of GDP at the close of 2023 — a much more conservative estimate than Capital Economics’ forecast, and far lower than the EM average of around 70%.

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