Riyadh, Saudi Arabia.
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Goldman Sachs economists warned that oil prices in conflicts caused by declining demand, fears of the world trade war and crude increase in supply could more than double the Saudi Arabia’s budget deficit.
The bank’s outlook highlighted the pressure on the kingdom to change its mammoth spending plans and fiscal measures.
“The fiscal deficits that are likely to be seen in GCC (Gulf Cooperation Council) countries, particularly in major powers like Saudi Arabia, will be quite important,” Goldman Sachs’ Farouk Susa, an economist in the Middle East and North Africa, told CNBC’s Access Middle East on Wednesday.
Kingdom spending is inflated for Vision 2030, a sweeping campaign to transform the Saudi Arabian economy and diversify its revenue streams away from hydrocarbons. The project is centered around Neom, a sparsely populated mega-region in the nearly sized desert of Massachusetts.
Neom’s plans include a super-ful development that is fully estimated to cost $1.5 trillion. The Kingdom also hosts the 2034 World Cup and the 2030 World Expo.
Digital rendering of Neom’s line project in Saudi Arabia
Line, Neom
Saudi Arabia needs oil at more than $90 a barrel to balance its budget, the International Finance estimates are estimated. This week Goldman Sachs reduced its 2025 oil price forecast to $62 per barrel of Brent crude.
“In Saudi Arabia, if oil prices stay around $62 this year, we see the deficit increase from $30 to $35 billion, from about $7-75 billion,” Soussa said.
“It means more borrowing and perhaps more reductions in expenditure. It probably means selling all of the assets mentioned above, which will affect both domestic financial position and potentially international impact.”
He added that, given the instability of the international market, “Funding for that level of deficit in the international market will be “challenging,” he added.
The kingdom still has important headroom to rent. As of December 2024, the debt-to-GDP ratio is just under 30%. In comparison, the debt-to-GDP ratios for the US and France are 124% and 110.6%, respectively. However, he said it would be difficult for the market to absorb the issue of $75 billion in debt.
“That debt to GDP is comforting, but it doesn’t mean that Saudi Arabia can issue as much debt as they like… They need to see other relief measures,” he said. Regional economists predict that several neom projects could reach the chopping block.
Saudi Arabia has an A/A-1 credit rating with a positive outlook from the S&P Global rating and an A+ rating with a steady outlook from Fitch. This, combined with $400 billion in foreign currency reserves as of January, as of January, will place the kingdom in a comfortable place to manage the deficit, according to CEIC data.
The Kingdom also launched a series of reforms to boost and diversify foreign investment, which S&P Global said in September that it would “continue to improve Saudi Arabia’s economic resilience and wealth.”
“So there are a lot of options in Saudi Arabia. All of these combinations are very difficult to judge in advance, but certainly we haven’t seen some kind of crisis,” Susa said. “It’s the question of which options they’re going to address the challenges they’re facing.”
Global benchmark Brent crude traded at $63.58 per barrel at 9:30am on Thursday in London, down about 14% since the start of the year.
