Higher defense + subsidy spending pushed Saudi Arabia’s widening 1Q 2026 budget deficit

Saudi Arabia’s books took a beating in the first three months of 2026, with the Kingdom’s 1Q fiscal deficit expanding to SAR 125.7 bn — the highest quarterly shortfall since 2018, and almost the entire FY 2026 deficit projection of SAR 165.4 bn racked up in three months.

Driving the deficit: Defense spending rose 26% y-o-y (thank you, Iran), subsidies leapt 170%, and total expenditures climbed 20% to SAR 386.7 bn while revenues fell 1%, Finance Ministry figures show (pdf). “It is hard to draw too much of a conclusion on spending from one quarter, but 1Q is usually quite modest, whereas this was the second highest quarter on record,” Justin Alexander, director of Khalij Economics and GCC analyst for GlobalSource Partners, told us. Recurring spending, he adds, is “likely to remain well above budget through this year.”

PIF’s answer arrived almost on cue. The fund came back to the USD market for the first timesince war broke out USD 7 bn, three-tranche bond that generated more than USD 24 bn in demand. Bankers priced it inside initial guidance across the curve. The raise followed Emirates NBD’s Additional Tier 1 and First Abu Dhabi Bank’s sukuk earlier in the week, suggesting the Gulf primary market is reopening.

IN OTHER PIF NEWS- The fund is opening an office in Shanghai as a satellite of its existing Beijing hub as Riyadh looks to expand ties to China. The new office will support outbound deals in China and route Chinese capital into the sectors Governor Yasir Al Rumayyan has flagged as priorities for PIF’s overseas allocation, including global equities, infrastructure, technology, aerospace, gaming.

What Saudi wants from China: To sell more oil of course — and to see more deals like the one that will see the first Saudi-assembled Lenovo devices, expected to ship later this year.