Saudi Fiscal Deficit Expected to Widen to 4.9% of GDP as Wartime Spending Offsets Oil Price Gains
nashnova research
Saudi Arabia raised its 2026 fiscal deficit forecast from 3.3% to 4.9% of GDP, as surging defense and infrastructure costs swallowed the revenue windfall from higher oil prices — while the growth outlook flipped from +4.6% to −3.6%.
Why did the deficit suddenly widen by nearly half?
The finance ministry on Wednesday lifted its 2026 deficit target from 3.3% to 4.9% of GDP, driven by a sharp rise in defense and infrastructure spending.
This means → oil prices did climb, but the war is burning cash faster than higher crude can replenish it, leaving the deficit deeper than before.
Full-year budget spending is now projected at SAR 1.4 trillion (~$380 billion), above earlier estimates; on the revenue side, Brent near $100 a barrel pushes expected income to SAR 1.2 trillion, with non-oil revenue at a record high.
Why did the growth forecast flip from positive to negative?
Real GDP for 2026 is now expected to contract 3.6%, a stark reversal from the prior +4.6% projection.
The ministry blamed the swing on an anticipated decline in oil activity under the shock of the US-Iran conflict; last quarter's GDP already posted its sharpest single-quarter contraction since Covid, with crude output falling to multi-decade lows.
In plain terms = the war crushed production volumes — and no oil price is high enough to offset barrels that never leave the ground.
How has the war hit Saudi Arabia?
Between March and April, Iran and Iran-backed forces launched multiple strikes on Saudi territory; Houthi militants in Yemen have since kept up missile and drone attacks on Saudi targets.
Iranian strikes on shipping in the Strait of Hormuz — the narrow chokepoint linking the Persian Gulf to open sea, through which roughly a fifth of global oil transits — effectively sealed the waterway for months, hitting nearly every Gulf state.
Saudi Arabia partially offset the damage by rerouting crude exports; combined with the global oil-price surge, second-quarter oil revenue hit a near-two-year high.
What is the logic behind the high spending?
Mohamed Abu Basha, head of macro analysis at investment bank EFG Hermes, said the projections show Riyadh is willing to spend heavily to prop up growth while pledging to rein in the deficit over the medium term.
This means → the government chose growth first and fiscal discipline second — a wartime spending bet funded by elevated oil revenue.
War-driven military outlays and Crown Prince Mohammed bin Salman's multi-trillion-dollar economic diversification agenda are running in parallel; high oil prices give the treasury room to bankroll both at once.
Can the deficit narrow in 2027?
The finance ministry projects the deficit will shrink to 3.6% of GDP in 2027, on modestly higher revenue and lower spending.
Monica Malik, chief economist at Abu Dhabi Commercial Bank, is more pessimistic: she estimates the 2026 deficit will reach 5.6% of GDP — close to 2025 levels — arguing that actual spending is likely to overshoot the budget.
This reflects a deeper uncertainty: whether the 2027 narrowing materializes depends on two variables — the course of the war and the trajectory of oil prices — and if either goes wrong, the target stays on paper.
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