Saudi Arabia's Economic Strategy: Defying Oil Slump with Increased Spending and Debt
In a move that might seem perplexing, Saudi Arabia is choosing to spend more, borrow more, and pursue ambitious economic projects, despite oil prices being significantly lower than what is required to balance its budget. The kingdom's 2026 budget outline reveals plans to allocate 1.3 trillion riyals (approximately $350 billion) next year, maintaining this level through 2027. This level of spending results in a projected deficit of around 3.3% of GDP in 2026.
However, the key to understanding this strategy lies in the Saudi perspective on deficits. Finance Minister Mohammed Al-Jadaan emphasizes that the deficit is a deliberate policy choice. As long as the returns on the kingdom's investments in sectors like tourism, logistics, manufacturing, AI, and the Vision 2030 projects exceed the cost of borrowing, the government is comfortable with these shortfalls. Saudi Arabia's debt levels, currently below 40% of GDP, provide a buffer, allowing them to borrow without triggering investor concerns.
The current oil price situation is not favorable for Riyadh. Brent prices hovering in the low-to-mid $60s are significantly lower than the estimated amount needed to balance the budget. While oil revenues have shown a slight recovery from their spring lows, they remain below the five-year average. Consequently, the kingdom has become one of the most active borrowers in emerging markets, securing nearly $20 billion in international debt this year.
Simultaneously, Saudi officials have been discreetly reassessing the Vision 2030 projects, extending timelines and reducing scope to prevent economic overheating. The non-oil sector now constitutes more than half of real GDP, and the government forecasts an overall economic growth rate of 4.6% in 2026 and 3.7% in 2027, driven by tourism and new industrial sectors.
The message from Saudi Arabia is clear: the oil market no longer dictates the pace of their economic transformation. The kingdom is committed to its spending, borrowing, and economic advancement, regardless of the cooperation or lack thereof from crude prices. This strategy reflects a bold approach to economic development, even in the face of challenging oil market conditions.
