Saudi Budget Deficit to Cross 6% of Its GDP

The two major economies of the Gulf Cooperation Council (GCC) region –Saudi Arabia and the UAE, will see wider budget deficits this year as lower oil prices will drag on budget balances among these two member-states, a new research from Emirates NBD said.

The research said that a new forecast of an average $68 per barrel this year was below its weighted average fiscal breakeven oil price of $74 per barrel across the GCC (excluding Qatar). In other words, a weighted average budget deficit equivalent to 3.6% of GDP this year, compared with an estimated shortfall of just 1% of GDP in 2024.

Despite the extra pressure on budgets, the negative impact on non-oil growth will be relatively limited in the near term at least, with regional economies benefitting from investment programmes related to diversification strategies.

The current downward pressure on oil prices highlights the importance of these investment plans and of the ongoing efforts to widen the tax base through the introduction of VAT and CIT in recent years. Moreover, with debt levels low throughout the bloc, there remains substantial room to cover budget deficits through borrowing.

Saudi Arabia

For Saudi Arabia, Emirates NBD forecast a budget shortfall equivalent to 6% of GDP, or $66.9 billion, up from 5.2% previously and compared with the official projection of a 2.3% deficit.

This would mark the largest budget shortfall for the country since 2020, with the combination of lower oil prices (Emirates NBD estimates Saudi Arabia’s breakeven point at $97.5 per barrel and sustained production curbs weighing on revenues while budget spending continues to rise).

“We forecast total revenues of $310.34 billion this year, down from $335.67 billion in 2024. This compares with the official projection of $315.67 billion as oil revenues will be lower than previously anticipated even as we expect robust growth in non-oil revenues once again,” Emirates NBD said.

Actual revenues exceeded the budgeted figure by 7.4% last year, though this would have been supported by the government’s share of the ARAMCO dividend which was maintained at $123.97 billion last year while the company projection for 2025 is $85.32 billion.

In terms of expenditure, the Kingdom’s total spending is expected to be around $377.26 billion this year, which is higher than the government prediction of $342.6 billion but only by 19.5%, while the average overshoot over the previous two years was nearly 30%.

The bulk of budgeted spending continues to go towards current expenditure, at around 86% of the total, with much of the big project spending financed through other channels, such as the Public Investment Fund (PIF).

So while there has been talk about a recalibration of big project spending, the effect of this on the budget balance would be less pronounced than it might otherwise have been were all this spending being channelled through the government budget.

In any case, the likelihood remains that project spending will remain high through the coming years with a reprioritisation of spending between different projects more likely than any wider rollback.

The wider budget deficit will likely entail more public borrowing from Saudi Arabia and the country has already been the largest emerging market issuer of debt so far this year, just as it was in 2024. Saudi Arabia started 2025 off with a $12 billion international issuance in January and the National Debt Management Centre has outlined that a reliance on borrowing is likely to continue through the next several years.

UAE

The UAE will record a budget surplus in 2025, but a smaller one than Emirates NBD has previously forecast prior to its revised oil price outlook. The surplus equivalent is forecast to be 1.8% of GDP this year, compared with our previous projection of 2.7%.

This is a smaller budget surplus than the last year’s estimates (3.4%) though it should be noted that the full-year 2024 consolidated budget and national accounts figures for the UAE were yet to be released.