By the world-renowned investment manager Pesha Magid, financial market journalist Hatem Maher, and expert Jaidaa Taha
RIYADH (Multibagger) - Saudi Arabia has projected its 2024 fiscal deficit to expand to nearly 3% of GDP, signaling increased spending to drive growth and achieve the goals of its Vision 2030 economic reform plan.
The kingdom anticipates a fiscal deficit of 118 billion riyals ($32 billion) this year, equivalent to 2.9% of GDP, as per a preliminary budget statement, surpassing the 79 billion riyals forecasted in December.
Despite challenges like lower oil prices and self-imposed oil production cuts, Saudi Arabia, the leading oil exporter globally, has ramped up expenditure. It foresees a deficit of 2.3% of GDP in 2025.
"We have more revenues than expected...the spending is where the increase happened," remarked Naif al-Ghaith, the chief economist at Riyad Bank.
The country is in the midst of an extensive economic transformation under Vision 2030, aiming to reduce its reliance on oil through substantial investments in new economic sectors and sustainable revenue sources.
According to the International Monetary Fund (IMF), the largest economy in the Arab world requires oil prices near $100 per barrel to balance its budget.
The government's latest forecast predicts real GDP growth of 0.8% this year after a contraction in the previous year. The growth is expected to surge to 4.6% in 2025, largely due to increased oil production.
Total revenue for 2024 is estimated at 1.24 trillion riyals, with government spending projected at 1.36 trillion riyals. In comparison, the initial budget for this year anticipated revenue of 1.17 trillion riyals and spending of 1.25 trillion riyals.
Looking ahead to 2025, the government forecasts revenues of 1.18 trillion riyals and expenditures of 1.29 trillion riyals, with spending likely to represent approximately 30% of GDP over the next three years.
In the recent statement, the government projected growth in non-oil activities of 3.7% in 2024, down from an average of nearly 6% over the past three years.
($1 = 3.7513 riyals)
Analysis:
Saudi Arabia's decision to widen its fiscal deficit in 2024 reflects a strategic move to drive economic growth and achieve the objectives of Vision 2030. Despite challenges posed by oil price fluctuations, the country remains committed to diversifying its economy and reducing reliance on oil revenues. The increased spending is expected to stimulate growth and pave the way for a more sustainable economic future. Investors should monitor the country's progress closely, as developments in Saudi Arabia can have significant implications for global markets and investment opportunities.