UPDATE 2-Saudi Arabia forecasts deficit of $44 billion in 2026 budget

Saudi Arabia approved its state budget for 2026 on Tuesday, forecasting a narrower fiscal deficit as it shifts spending to priority sectors such as industry and logistics and pushes to increase non-oil revenue. The kingdom has projected a deficit of 165 billion riyals in its 2026 budget, or about 3.3% of GDP, trimmed back from the 245 billion riyals it now estimates for this year as lower oil prices and production weighed on revenue and spending overshot the budgeted level by around 4%.

Saudi Arabia approved its state budget for 2026 on Tuesday, forecasting a narrower fiscal deficit as it shifts spending to priority sectors such as industry and logistics and pushes to increase non-oil revenue.

The kingdom has projected a deficit of 165 billion riyals in its 2026 budget, or about 3.3% of GDP, trimmed back from the 245 billion riyals it now estimates for this year as lower oil prices and production weighed on revenue and spending overshot the budgeted level by around 4%. The world's top oil exporter, Saudi Arabia is more than halfway through its Vision 2030 blueprint for economic transformation. The strategy, introduced by de facto ruler Crown Prince Mohammed bin Salman in 2016, calls for hundreds of billions of dollars in government investment.

The crown prince said after the budget's approval that since Vision 2030 was launched there had been improved growth of non-oil activities and a boosted role of the private sector, according to state news agency SPA. The 2026 budget brands the coming year as the start of a "third phase" of Vision 2030 and a shift from launching reforms to stepped up implementation. This third phase focuses on accelerating projects and expanding growth opportunities to secure a "sustainable impact beyond 2030", according to the budget statement.

The change in tone comes as Riyadh moves to refocus its $925 billion sovereign wealth fund away from delayed massive real estate projects known as gigaprojects toward sectors such as logistics, minerals, AI and religious tourism. "Our level of spending in the last three budget cycles has been consistent, but now it is about what we are spending on, rather than how much we are spending," finance minister Mohammed Al Jadaan told Reuters in a briefing ahead of the budget release, noting a focus on industry, tourism, technology, logistics and transport.

'DEFICIT BY DESIGN' Total expenditure is projected at 1.31 trillion riyals in 2026, lower than an estimated 1.34 trillion riyals this year, while total revenue is forecast at 1.15 trillion riyals, slightly up on the estimated 1.1 trillion riyals in 2025.

The 2025 deficit is estimated to leap to 245 billion riyals, or 5.3% of GDP, more than double the budgeted target of 101 billion riyals, or 2.3% of GDP. Revenues are estimated to miss the budgeted target by about 7.8%, while spending is seen 4% higher.

"This is a deficit by design," Jadaan said in a media briefing on Monday. "We, by policy choice, will have a deficit until (20)28." Monica Malik, chief economist at Abu Dhabi Commercial Bank, said: "The still low government debt level provides space for this fiscal stance, though it is vulnerable to a further fall in the oil price."

NO GOLD-PLATED PROJECTS The Saudi government and the nation's almost $1 trillion Public Investment Fund have both undergone a review of project and spending priorities, Jadaan told Reuters.

Some demands that seemed to be overly ambitious in terms of time frame or investment were scaled back to more reasonable objectives, he said. Reuters reported in October that the PIF is preparing to shift away from a focus on real estate gigaprojects that have dominated its development goals for the last decade.

The 2026 budget made no mention of specific gigaprojects such as NEOM or island resort Sindalah, in a departure from the 2025 budget. The PIF, like the finance ministry, is making sure initial plans for projects "are recalibrated to ensure that they are delivering what they are meant to deliver", Jadaan said.

($1 = 3.7536 riyals)

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