Why Saudi Arabia can spend more money than it makes, even as oil prices drop

Middle East Eye

02-05-2025

Oil prices have sunk and foreign investors are not buying into Saudi Arabia's grandiose megaprojects, but the kingdom doesn't appear to be sweating it.
In fact, Saudi Arabia is telling oil industry insiders that it can live with low energy prices, according to Reuters.
One reason that's true is because Saudi Arabia is, for now, in a position many would envy, experts say.
The fact is, the Gulf kingdom can spend a lot more money than it makes.
Saudi Arabia is trying to wean its economy off relying on energy revenue, after all, that is the idea behind mega-projects like Neom. But for now, oil still accounts for roughly 61 percent of Saudi Arabia's revenue, according to its 2025 budget.
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Saudi Arabia and other Gulf states are some of the few in the world whose governments' revenues are so tied to energy prices. That is why when analysts and experts write about the kingdom's finances, they often use a term called the 'break-even oil point' - the level Saudi Arabia would need oil to be at to neither run a budget deficit nor a surplus.
According to Oxford Analytica, Saudi Arabia needs an oil price of over $100 per barrel to balance its budget in 2025 when factoring in spending by the kingdom's Public Investment Fund (PIF) on megaprojects.
But that line, often repeated in analysis and news articles, needs unpacking, some experts say.
'Saudi Arabia doesn't need to balance its budget,' Ellen Wald, the founder of the energy consulting firm Transversal Consulting, and the author of Saudi Inc., told Middle East Eye.
'The idea that Saudi Arabia needs a certain dollar per barrel to balance its budget doesn't really explain the new Saudi mindset when it comes to oil pricing,' Wald said.
Budget deficits
Saudi Arabia is fine running budget deficits. The kingdom's 2025 budget expects a fiscal deficit of $27bn or 2.3 percent of GDP.
According to a report published in April by the Arab Gulf States Institute, if oil prices were to average $65 per barrel in 2025, the deficit would likely be around $56bn or 5.2 percent of GDP. Analysts say that is probably ok with Riyadh, too, for now.
'The new Saudi Arabia can take on debt'
- Ellen Wald, Saudi Inc. author
Oil prices have been knocked down by concerns that US President Donald Trump's tariffs could upend the global economy. The chances of an Iranian nuclear deal freeing Iran's oil from US sanctions could also hit prices.
Brent, the international benchmark, was trading down 1.2 percent on Friday at $61.40 per barrel.
Running a big budget deficit can be a drag on a country's finances. For example, Trump campaigned on promising to reduce the US's current 6.5 percent deficit to three percent. In the past months, some experts have issued near-apocalyptic warnings about the US budget deficit.
But the US is unique in the world because the dollar is the world's reserve currency, which analysts say has given presidents on both sides of the American political aisle a safety valve for profligate ways.
Saudi Arabia is not the US, but experts say it has space to run deficits, too.
S&P Global Ratings this month raised Saudi Arabia's credit rating to A+, which puts it on par with China and Japan.
Saudi Arabia also has an attractive war chest. It boasts foreign reserves of more than $430bn. It has a debt-to-GDP ratio of just 30 percent, well below that of other emerging markets.
Saudi debt deluge
To plug its short-term financing needs, Saudi Arabia is unleashing a deluge of debt.
In 2024, Saudi Arabia advanced above China as the most active issuer of international debt in emerging markets. Analysts say this trend is going to continue into 2025.
The kingdom has already issued more than $14bn of debt in dollars and Euros this year, and it could be on track to double that number before the end of the year, according to the Arab Gulf States Institute's visiting scholar, Tim Callen.
'Given Saudi Arabia still has a strong fiscal position, financing a larger deficit will not be a problem,' Callen wrote last month. 'Although in a lower oil price environment, it is likely that lenders will require a higher interest rate to buy the debt than they did earlier this year.'
Wald put it another way to MEE: 'The Saudis would prefer not to be in debt, but many people are. The new Saudi Arabia can take on debt.'
Will Asian investors bail out Saudi Arabia?
Saudi Arabia's spending needs are vast, and PIF is at the centre of them, driving the kingdom's economic transformation. It has already raised about $5bn in debt this year.
Despite this, the kingdom has already had to scale back Neom, originally billed as a $1.5 trillion megacity project, which organisers claim will eventually be 33 times the size of New York City and include a 170km straight-line city known as "The Line'.
Instead of 1.5 million people living in the city by 2030, Saudi officials now anticipate fewer than 300,000 residents. Meanwhile, only 2.4km of the city will be completed by 2030.
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On Monday, The Financial Times reported that Neom's CEO has launched a 'comprehensive review' of the project, citing 'limited resources'.
Andrew Farrand, Middle East director at Horizon Engage, a political risk consultancy focusing on energy, said the cutbacks to projects like Neom are recognition inside the kingdom that while demand for its debt is strong, it is not limitless.
'Saudi Arabia is in a significantly better position than other emerging markets. They have a long runway before the debt taps dry up, but there is a runway,' he told MEE.
The kingdom's finances have been hit by Trump's tariff threat, with the economic uncertainty they unleashed weighing on energy prices. However, as Saudi Arabia looks to tap global debt markets, it may benefit from a new Trump trade.
Asian buyers have long looked to US debt in the form of treasuries as the gold standard of safe investments, but they have been unnerved by Trump's trade war and the status of the US dollar as a safe haven, Timothy Ash, a senior emerging market sovereign strategist at RBC Bluebay, told MEE.
'We are seeing strong appetite in Asia to invest in the Gulf states. Saudi Arabia will benefit from Asian investors selling US debt,' Ash told MEE.