Saudi Arabia, the world’s largest oil exporter, is facing economic uncertainty as falling oil prices threaten the country’s ambitious growth and diversification plans. While the kingdom has worked towards reducing its dependence on oil through Vision 2030 reforms, analysts warn that declining oil revenues could widen the budget deficit and slow down key development projects.
Economic Growth and Diversification Efforts
Saudi Arabia has made significant progress in its economic diversification efforts. The Vision 2030 initiative, led by Crown Prince Mohammed bin Salman, aims to develop non-oil sectors such as tourism, technology, logistics, manufacturing, and mining. The country has also been investing heavily in giga-projects like NEOM, the $500 billion futuristic city, and other large-scale infrastructure developments to attract foreign investment and create new job opportunities.
As part of these reforms, Saudi Arabia has improved its economic policies, leading to credit rating upgrades from international agencies. In early 2025, S&P Global Ratings raised Saudi Arabia’s credit rating, recognizing its efforts to shift away from oil dependence. The government has also introduced measures to encourage private sector growth, such as easing regulations on foreign investments and expanding public-private partnerships.
However, despite these positive steps, the Saudi economy remains heavily reliant on oil revenues. The volatility of global oil prices continues to pose risks to fiscal stability, making it difficult for the country to fully achieve its diversification goals in the short term.
Budget Deficit Projections
The Saudi finance ministry has projected a budget deficit of approximately 2.3% of GDP for 2025, with deficits expected to continue in the following years. The primary reason for this is a combination of increased government spending and lower oil revenues. In 2025, government expenditures are expected to rise to around 1.3 trillion riyals ($342.6 billion), while revenues are projected to decline by 4.3%.
Although Saudi Arabia has accumulated financial reserves over the years, persistent budget deficits could force the government to either cut spending or take on additional debt. The fiscal pressure is further intensified by the need to finance large-scale projects that are essential to the country’s long-term development strategy.
One of the key risks is whether the government will be able to maintain spending levels on its major projects without compromising financial stability. While Saudi officials remain optimistic about future growth, economists warn that prolonged budget deficits could strain the country’s financial resources.
Impact of Oil Prices on Fiscal Health
Saudi Arabia’s economic performance is closely tied to global oil prices, which have been declining due to weaker global demand and increased supply from other oil-producing nations. Saudi Aramco, the state-owned oil giant, reported a 12% drop in profits in 2024, earning $106.25 billion compared to previous years. This decline in oil income has put financial pressure on the Saudi government, which relies on crude exports to fund its national budget.
Lower oil revenues have also raised concerns about the sustainability of the country’s ambitious development projects. Some analysts believe that the Saudi government may need to adjust its spending plans or delay certain initiatives to manage its fiscal deficit. However, reducing spending on infrastructure and development projects could slow down economic diversification efforts, creating a difficult balancing act for policymakers.
Another challenge is Saudi Arabia’s commitment to maintaining oil production cuts in coordination with OPEC+ to stabilize global oil prices. While these cuts help prevent a further decline in oil prices, they also limit the country’s ability to generate higher revenues from oil exports. This trade-off underscores the challenges Saudi Arabia faces in managing its oil-dependent economy while pursuing broader economic reforms.
Government Spending and Consultancy Services
In response to growing fiscal pressures, the Saudi government has been reassessing its expenditures, particularly in the area of consultancy services. Over the past few years, international consulting firms have played a significant role in advising Saudi authorities on various development projects, including urban planning, infrastructure, and economic policy. However, with budget deficits looming, there is increasing scrutiny over the high costs associated with these consultancy services.
Reports suggest that Saudi authorities are now tightening budgets and prioritizing cost-effective solutions, leading to reduced contracts for international consulting firms. This shift indicates a broader effort to control government spending and ensure that financial resources are allocated efficiently. While cost-cutting measures can help improve fiscal discipline, they also raise questions about whether Saudi Arabia can maintain the same level of expertise and efficiency in executing its ambitious projects without external consultants.
Future Outlook
Saudi Arabia’s economic future will depend on several factors, including global oil price trends, the effectiveness of its diversification efforts, and the government’s ability to manage fiscal challenges. While Vision 2030 has laid the foundation for long-term economic transformation, the country still faces short-term risks that could impact its growth trajectory.
To mitigate these risks, Saudi Arabia may need to accelerate economic reforms, explore alternative revenue streams, and strengthen its private sector. Encouraging foreign direct investment, improving the business environment, and fostering innovation will be key to ensuring sustainable growth beyond oil.
At the same time, maintaining fiscal discipline will be crucial. The government will need to strike a balance between continuing its ambitious projects and ensuring financial stability. If oil prices remain low, Saudi Arabia might have to make tough decisions about spending priorities, potentially delaying or scaling back some of its mega-projects.
In conclusion, while Saudi Arabia has made commendable progress in diversifying its economy, the road ahead remains uncertain. The country must navigate the challenges posed by fluctuating oil revenues while staying committed to its long-term vision. The coming years will be critical in determining whether Saudi Arabia can successfully transition to a more diversified and resilient economy or remain vulnerable to the ups and downs of the global oil market.
