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The government expects Saudi’s GDP to register 4.6% growth in 2025, the Finance Ministry said in its pre-budget statement for FY 2025 (pdf).
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The statement expects the budget deficit to come in at 2.3% of GDP, narrowing 0.6 percentage points from the government’s expectation of a 2.9% deficit in 2024. The budget deficit is expected to come in at SAR 101 bn in 2025, the ministry said, as a faster decline in expenditures offsets some of the fall in revenues.
Money in, money out: Total revenues are expected to come in at SAR 1.18 tn in 2025, as the government maintains a reserved outlook on oil and non-oil revenues. That’s a notch above the SAR 1.17 tn the ministry had initially budgeted for 2024, but is below the estimated actual revenue of SAR 1.24 tn this year. Expenditures are expected to come in at SAR 1.29 tn in 2025, which again is above the initial budget figures but below the estimated actual figures for 2024.
IN CONTEXT- The government continues to double down on diversification plans and gigaprojects while staying clear of “overheating” the national economy. Officials have also said that they’re willing to accept modest fiscal deficits as the price of pursuing long-term diversification.
FinMin’s budget scenarios for 2025:
- Baseline scenario: A budget deficit of SAR 101 bn — with revenues at SAR 1.18 tn and expenditures at SAR 1.29 tn;
- Low scenario: A budget deficit of SAR 164 bn — with revenues at SAR 1.12 tn and expenditures at SAR 1.29 tn;
- High scenario: A budget deficit of SAR 44 bn — with revenues at SAR 1.24 tn and expenditures at SAR 1.29 tn.
Plugging the gap: The Kingdom will continue to draw on debt markets to meet its financing needs, as its strong fiscal position allows it to maintain its reserves and draw on an “additional fiscal space” to fill funding gaps.
A new annual borrowing plan? FinMin is set to introduce an annual medium-term borrowing plan through the National Debt Management Center as it looks to shore up debt sustainability and diversify funding by accessing global debt markets, it said in the statement.
What the pundits are saying: “On the expenditure side, the Saudis are forecasting a cut in spending, but persistent past spending overshoots make this doubtful,” Bloomberg cites Goldman Sachs MENA economist Farouk Soussa as saying. Soussa also raises “big questions around production targets and global oil prices” and how those will affect revenue targets.
HOW 2024 IS LOOKING-
Real GDP is forecasted to grow at a 0.8% clip in 2024, on the back of a 3.7% increase in non-oil activities, as well as growth in private consumption and investment, according to the pre-budget statement. The latest estimate represents a downgrade from the 4.4% GDP growth forecast Finance Minister Mohamed Al Jadaan had outlined for 2024 last December.
REMEMBER: Saudi’s GDP shrank 0.4% in 2Q 2024, marking the fourth consecutive quarter of contraction.
Economic growth forecasts have trended downward all year: Saudi’s GDP was initially pegged by Saudi officials in January to grow at around 4.5-5.0% this year, with the World Bank expecting 4.1% growth. The World Bank later slashed its estimate to 2.5% — a number it later maintained in June. Meanwhile, the IMF cut back an earlier 4% forecast to 2.7% in January, before slashing it again 2.6% in April, and finally to 1.7% in July. More recently, a Reuters poll and a Riyad Capital forecast penciled in growth clips of 1.3% and 1.5%.
The government expects to record a budget deficit of SAR 118 bn (2.9% of GDP) in 2024, compared to a SAR 79 bn deficit in its approved budget for the year, and marking a 45.7% y-o-y increase from 2023’s SAR 81 bn deficit.
Expenditures rose faster than revenues, with both categories up: Total expenditures for 2024 are forecasted at SAR 1.4 tn, SAR 104 bn more than budgeted, while total revenues are estimated at SAR 1.2 tn, SAR 65 bn than the figure penciled in for the year’s budget. Despite revenues being higher than expected, “spending is where the increase happened,” Reuters cited Riyad Bank’s Chief Economist Naif al Ghaith as saying.
Inflation is set to cool to 1.7% in 2024, down from 2023’s 2.3%, on the back of “proactive measures and policies to control rising prices,” the ministry said in its report. Inflation will then accelerate to 1.9% the following year and stabilize there until 2027.
