Saudi Arabia lifts 2026 deficit forecast to 4.9% of GDP

Summary

• Riyadh now projects a 2026 deficit of 4.9% of GDP, up from 3.3%.
• Higher oil prices offset lower export volumes, but spending is rising faster than revenue.
• Debt risks breaching the kingdom's 40%-of-GDP ceiling before 2030 without stronger growth.

The latest

Saudi Arabia's 2026 budget deficit is now projected at 4.9% of GDP, sharply wider than the 3.3% forecast issued in late 2025, according to Semafor Gulf. Revenue has come in above prewar estimates as higher oil prices compensated for reduced export volumes. The problem is on the other side of the ledger: spending is set to climb faster than the money coming in.

Details

• The revision: The deficit outlook for 2026 has moved to 4.9% of GDP from the 3.3% projected in late 2025, Semafor Gulf reported. That is a gap of roughly 1.6 percentage points opening up within a single forecasting cycle, driven by expenditure rather than by a collapse in income.
• The revenue side: Higher oil prices have largely offset lower export volumes, lifting Saudi revenue above prewar estimates, according to the report. In other words, the price effect has so far done the work that volumes could not, leaving the fiscal strain concentrated on the spending line.
• The debt ceiling: Government debt is at risk of breaching the kingdom's self-imposed 40%-of-GDP ceiling before the end of the decade unless growth improves, Semafor Gulf reported. The threshold is a policy marker Riyadh set for itself rather than an externally imposed limit.
• The growth shock: GDP is expected to contract 3.6% in 2026, a decline attributed to reduced oil output rather than to weakness in the non-oil economy. That contraction is the central reason the debt ratio is under pressure, since a smaller denominator pushes the ratio higher even without new borrowing.
• The rebound scenario: A recovery of nearly 13% is possible in 2027 if oil flows are restored, according to the report. The figure is conditional, and the condition is production rather than price: the rebound depends on barrels returning to market, not on where crude trades.
• Defense spending: Riyadh is directing resources toward reinforcing defense spending because of the regional conflict, Semafor Gulf reported. It is one of two priority areas absorbing budget capacity at the same moment the kingdom is attempting to narrow its overall fiscal gap.
• Bypassing Hormuz: The second priority is infrastructure for trade routes that bypass the Strait of Hormuz. That is capital expenditure aimed at reducing the kingdom's exposure to a single maritime chokepoint, and it lands on the budget alongside the defense increase rather than instead of it.
• The offset: Riyadh is also taking steps to cut back non-essential spending, according to the report. No timeline was given for those reductions and the specific programs targeted were not identified, leaving the scale of the offset against defense and infrastructure outlays unquantified.

Between the lines

The fiscal squeeze is not a revenue failure. Revenue is running above prewar estimates, and the deficit is widening anyway because defense and Hormuz-bypass infrastructure are both being funded at once. That is why the 40% debt ceiling is now in play: with GDP set to shrink 3.6%, the ratio deteriorates even if borrowing holds steady. The 2027 rebound case rests entirely on restored oil flows.

What's next

Watch the 2027 budget statement for whether the 4.9% projection holds, which non-essential programs are cut, and whether oil output recovers enough to deliver the projected 13% rebound.

Source: Semafor Gulf