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The Finance Ministry is targeting GDP growth of 4.6% in its budget for the next fiscal year, maintaining its pre-budget forecasts, it said in its budget statement for FY 2025 (pdf). The growth is expected to come mainly on the back of increased non-oil activities and private sector participation.
Notably, the ministry does not cite the oil sector as a key driver for the economy next year as a timeline for Opec+ production restarts begins to look increasingly hazy. The new budget was approved yesterday evening in a cabinet session chaired by Crown Prince Mohammed bin Salman.
Oil cuts tied down growth this year, the ministry said in the budget statement, maintaining its expectation that real GDP will grow 0.8% in 2024 as growth in non-oil activities partially offsets declines in the energy sector.
Money in, money out: Total revenues are expected to come in at SAR 1.18 tn next year, while total expenditures is set at SAR 1.29 tn as the Kingdom factors in lower oil prices.
The budget deficit is expected to come in at 2.3% of GDP (SAR 101 bn) in the next fiscal yearand to “continue at similar levels over the medium term” as the Saudi state continues to invest heavily in the diversification agenda.
The IMF expects that Brent prices would need to hover around USD 78 / bbl for the Saudi budget to break even, Bloomberg says citing forecasts by the multilateral lender. Bloomberg Economics’ estimates — which take into account spending by PIF — cite a higher USD 106 / bbl breakeven point. Meanwhile, FinMin is looking to tap domestic and foreign debt resources “over the medium term” to cover the budget deficit.
Nevertheless, oil is not as important to Saudi’s finances as it used to be, with oil shocks having less of an impact than before, Bloomberg quotes Finance Minister Mohammed Al Jadaan as telling reporters.
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.
Spending highlights for FY 2025: The military (SAR 272 bn), healthcare and social development (SAR 260 bn), education (SAR 201 bn), and security and regional administration (SAR 121 bn) represent the key pillars of government spending for the upcoming fiscal year. Military spending will see the largest bump from this year’s budget, up 5.3%, due to heightened regional tensions, Al Jadaan told reporters, France24 reports.
FinMin’s revised 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 160 bn — with revenues at SAR 1.13 tn and expenditures at SAR 1.29 tn;
- High scenario: A budget deficit of SAR 50 bn — with revenues at SAR 1.13 tn and expenditures at SAR 1.29 tn.
