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, unveiled on Tuesday, reveals plans to allocate a staggering 1.3 trillion riyals (approximately $350 billion) in the coming 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 diverse investments in sectors like tourism, logistics, manufacturing, AI, and the Vision 2030 projects surpass the borrowing costs, the government is content with running these shortfalls. This approach is supported by the country's relatively low debt levels, which stand below 40% of GDP, providing a buffer for borrowing without triggering investor concerns.
The current oil price situation, however, is not favorable to Saudi Arabia. Brent prices hovering in the low-to-mid $60s are significantly lower than the estimates required 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 most substantial Vision 2030 projects, extending timelines and streamlining scopes to prevent economic overheating. The non-oil sector now contributes over half of the real GDP, and the government forecasts a 4.6% growth rate in 2026 and 3.7% in 2027, driven by tourism and emerging industrial sectors.
The underlying message from Riyadh is clear: the oil market no longer dictates the pace of the kingdom's economic transformation. Saudi Arabia is committed to its spending, borrowing, and economic development plans, regardless of the fluctuating crude prices. This strategy reflects a bold and forward-thinking approach, showcasing the country's determination to diversify its economy and maintain its global influence.
