Saudi Arabia's 2025 Budget: A Strategic Move Amidst Economic Challenges
On November 26, 2024, Saudi Arabia's Finance Minister Mohammed Al-Jadaan announced the approval of the 2025 budget, projecting a deficit of approximately 101 billion riyals ($26.88 billion). This deficit aligns with earlier forecasts, representing about 2.3% of the nation's GDP. The budget reflects the kingdom's commitment to continuing its ambitious economic transformation under the Vision 2030 initiative, which aims to diversify the economy away from oil dependency.
The total spending for 2025 is expected to reach around 1.285 trillion riyals ($342.05 billion), while total revenues are projected at 1.184 trillion riyals ($315.17 billion). Despite the ongoing challenges posed by low oil prices and voluntary production cuts, the Saudi government plans to invest heavily in mega projects that will stimulate growth and create new economic sectors. Crown Prince Mohammed bin Salman emphasized that the positive indicators of the Saudi economy are a result of the ongoing reforms under Vision 2030.
Focus on Development Projects and Infrastructure
The 2025 budget prioritizes strategic spending on development projects, particularly in sectors like tourism and manufacturing. The government's strategy includes attracting foreign investment and generating job opportunities for Saudi citizens. However, rising costs associated with these projects have led the kingdom to reassess some initiatives, opting to focus on completing facilities for upcoming global sporting events.
Monica Malik, chief economist at Abu Dhabi Commercial Bank, noted that while the deficit is manageable, it may lead to a gradual increase in government debt, which is projected to reach 1.3 trillion riyals ($346 billion) in 2025, just under 30% of GDP. The finance ministry has also revised its 2024 deficit estimate to 115 billion riyals ($30.6 billion), indicating a slight improvement in fiscal health.
Economic Outlook and Future Growth
Looking ahead, the Saudi economy is expected to rebound after a contraction in 2023, with GDP growth projected at 0.8% in 2024 and a significant acceleration to 4.6% in 2025, driven by increased non-oil activities. The government plans to finance the budget deficit through local and international financing operations, ensuring the sustainability of its economic transformation efforts while maintaining strong fiscal fundamentals.
