Saudi Arabia's Economic Strategy: Defying Oil Slump with Increased Spending and Debt
In a move that might seem paradoxical, Saudi Arabia is choosing to spend more, borrow more, and pursue ambitious economic projects despite the current low oil prices. The country's 2026 budget outline reveals plans to allocate a staggering 1.3 trillion riyals (approximately $350 billion) next 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 exceed the cost of borrowing, the government is comfortable with these shortfalls. This approach is supported by the country's relatively low debt levels, which stand at below 40% of GDP, providing a buffer for borrowing without causing investor alarm.
The current oil price situation is not aiding Riyadh's budget. Brent prices hovering in the low-to-mid $60s are significantly lower than the amount needed to balance the budget. While oil revenues have shown some recovery from their spring lows, they still fall short of 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 Vision 2030 projects, extending timelines and reducing scope 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 Saudi Arabia is clear: the oil market no longer dictates the economic pace. The kingdom is committed to its spending, borrowing, and economic transformation plans, regardless of the oil price fluctuations. This strategy reflects a bold and forward-thinking approach to economic development, even in the face of challenging market conditions.
Source: Oilprice.com
