Riyadh cuts 2026 deficit forecast to $44bn amid pressure to expand non-oil revenue

• 2026 budget projects deficit of 165 billion riyals.
• Saudi Arabia halfway through its Vision 2030 strategy.
• The next phase of the Vision 2030 plan will emphasize implementation.

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

The kingdom projected a deficit of 165 billion riyals ($44 billion), or about 3.3 percent of gross domestic product. That would be lower than the 245 billion riyals it now estimates for this year, after lower oil prices and production weighed on revenue and spending exceeded the budget level by about 4 percent.

The world’s top oil exporter, Saudi Arabia, is more than halfway through its Vision 2030 plan for economic transformation. The strategy, introduced by Crown Prince Mohammed bin Salman in 2016, calls for hundreds of billions of dollars in state investment to wean the kingdom’s economy off its dependence on hydrocarbon revenue.

According to the budget, 2026 will mark the start of a “third phase” of Vision 2030, marking a shift in focus from initiating economic reforms to maximizing their impact.

The crown prince described the new phase as “accelerating the pace of progress and increasing development opportunities to achieve a sustainable impact beyond 2030,” according to state news agency SPA.

Change in spending but few details

The change in tone comes as Riyadh moves to refocus its $925 billion sovereign wealth fund away from delayed massive real estate projects in sectors such as logistics, minerals, artificial intelligence and religious tourism.

“Our level of spending in the last three budget cycles has been consistent, but now it’s about what we spend and not how much we spend,” Finance Minister Mohammed Al Jaddan said. Reuters before the budget is released.

The budget included some specific goals for this new focus. However, beyond setting a target of over 20 million visitors from abroad for the Umrah pilgrimage to Mecca in 2026, a sharp increase from the 15 million pilgrims expected this year.

Saudi Arabia to run ‘deficit by design’ by 2028, finmin says

Total spending is forecast at 1.31 trillion riyals in 2026, down from 1.34 trillion riyals estimated this year. Total revenue is forecast at 1.15 trillion riyals, slightly higher than the estimated 1.1 trillion riyals in 2025.

“This is a deficit by design,” Jadaan said at a media briefing on Monday. “We, by political choice, will have a deficit until (20)28”.

The expected jump in the 2025 deficit to more than double the budgeted target of 101 billion riyals would put the deficit at 5.3% of GDP, up from the original target of 2.3%.

This year’s revenue is estimated to exceed the budget target by about 7.8%, while spending looks 4% higher.

Public debt is expected to reach about 1.5 trillion riyals by the end of 2025 – about 31.7% of GDP – from 1.2 trillion riyals in 2024 to help cover financing needs this year, the finance ministry said.

“The still low level of public debt provides room for this fiscal stance, although it is vulnerable to further oil price declines,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.

Recalibration to ensure delivery of projects

The Saudi government and the country’s nearly $1 trillion Public Investment Fund have undergone a review of project priorities and spending, Jadaan said Reuters.

Some demands that seemed overly ambitious in terms of time frame or investment were narrowed down to more reasonable targets, he said.

Reuters reported in October that the PIF was preparing to move away from the big real estate projects that have dominated its development goals for the past decade.

In a departure from this year’s spending package, the 2026 budget made no mention of specific major projects such as NEOM or the Sindalah Island resort.

The PIF, like the finance ministry, sees to it that initial plans for projects “are recalibrated to ensure they deliver what they are intended to deliver,” Jadaan said.