Saudi Arabia Embraces Deficit Spending to Fuel Economic Diversification

Saudi Arabia is projecting budget deficits in the coming years, a deliberate strategy to accelerate its economic diversification efforts under Vision 2030, according to the Kingdom’s Minister of Economy and Planning, Faisal Al-Ibrahim, Bloomberg reports.

Speaking to Bloomberg Television on Wednesday, Al-Ibrahim explained the shift from a previous focus on zero-deficit budgets.

“We were trying to get our finances and financial management in order,” he said, “After that, we realized that a deficit by design in a stable region between 2% and 3% is good for investing in the right economic sectors.”

The kingdom anticipates a fiscal deficit of around 2.8% of gross domestic product (GDP) this year, with no immediate return to surplus projected. This deficit financing is fueling the ambitious Vision 2030 agenda, aimed at reducing the country’s reliance on oil revenues and creating a more robust non-oil economy.

Al-Ibrahim highlighted the significant progress made in this area.  Non-oil activities currently contribute approximately 52% to Saudi Arabia’s GDP, a figure expected to increase further.  This growth is seen as crucial for job creation and long-term economic stability.

However, the government is exercising caution amidst fluctuating oil prices, which remain below levels needed to balance the budget.  Some Vision 2030 projects have been scaled back, and spending cuts are planned for 2025 after exceeding targets this year.

Despite the deficit spending, the outlook remains positive.  The government forecasts economic growth of 0.8% this year, increasing to 4.6% by 2025.  Robust growth in the non-oil sector, projected at 4-5% annually, is a key driver of this optimism.  This positive outlook has been acknowledged by Moody’s Investors Service, which upgraded Saudi Arabia’s credit rating this month, citing the accelerated development of non-hydrocarbon sectors as a major contributing factor.