After output rise and price fall…what happens to Saudi budget?
When Saudi Arabia released its 2025 budget late last year, it projected oil production at more than 9 million barrels per day (bpd) and prices at around $70/barrel, envisaging a deficit of 101 billion Saudi riyals ($27 billion).
Its production forecast is somewhat true as the world's dominant crude exporter is expected to pump around 9.4 million bpd as per estimates by the Riyadh-based Jadwa Investment company.
But prices have dipped below that level, reflecting the Gulf Kingdom's failure to foretell their exact direction, which is largely influenced by market conditions and other factors, the latest of which are the planned increase in US tariffs on global imports.
'You cannot predict the exact actual deficit right now…but I don't think it will go down in the current global circumstances…rather it may go up,' said Jamal Banoun, head of the Riyadh-based SMC consultancy centre.
In a study sent to Zawya Projects, Jadwa expected Saudi oil output at 9.4 million bd this year, an increase of around 400,000 bpd from 2024.
'We have revised our forecast for Brent crude to $67 a barrel in 2025 as US tariff policy stabilises somewhat, US shale production plateaus and OPEC Plus production growth slows later in the year…higher volumes will offset part, but not all, of lower prices in Saudi Arabia's revenues,' it said.
Over the past 10 years, the price of Saudi crude has averaged around $70 a barrel but the breakeven price needed to balance the Gulf Kingdom's budget has remained above $90 a barrel, which is almost impossible to achieve in the present situation, said Saeed Al-Shaikh, a former Shura (appointed parliament) member and ex-chief economist at the National Commercial Bank, now Saudi National Bank (SNB).
He told Zawya Projects that the price needed to keep that deficit in check is around $70 provided spending is restrained and non-oil export earnings continue to grow.
Another Saudi analyst said the Kingdom's non-oil income has grown enough in the past decade to somehow shield its fiscal system against extreme price fluctuations.
'Reports speak about an average oil prices of $65-75 this year…this is not a high price but we have to note that there has been a radical change over the past 10 years when the Kingdom's Vision 2030 was launched,' said Ihsan Buhlaiga, a former member of Shura council (appointed parliament).
'We can see that the influence of fluctuating oil prices on the Kingdom's public spending and development plans has noticeably receded,' he added.
Citing government data, Buhlaiga said non-oil revenues nearly tripled from around SAR 166 billion ($44 billion) in 2015, the year before Vision 2030 was launched, to SAR 503 billion ($134 billion) in 2024.
'What is re-assuring is that non-oil revenues appear on their way up to the targeted level of SAR1 trillion ($266 billion) by the end of Vision 2030,' he added.
In a previous study, Jadwa expected the 2025 budget shortfall to edge up to around SAR127 billion ($33.8 billion) by the end of the year but the study was based on an average crude price of around $75 a barrel.
Budget performance in the first quarter may have set the direction for the final annual result but all this depends on geo-politics and other factors that may influence prices.
During the first quarter, the budget deficit leaped fourfold due to lower oil export earnings. It stood at SAR59 billion ($16 billion) against $3.3 billion a year before.
Revenues fell 10 percent to SAR264 billion ($70 billion) while spending swelled by around five percent to SAR322 billion ($86 billion), the Finance Ministry said.
Despite its massive overseas assets, now close to $1 trillion, Saudi Arabia has shunned withdrawal from the reserves, opting instead for borrowing.
Its public debt has nearly doubled over the past seven years to reach around SAR1.3 trillion ($347 billion) at the end of March from SAR560 billion ($149 billion) at the end of 2018, the Ministry said .
The debt is forecast to surge in the next two years due to a projected budget deficit, boosting its ratio to GDP to one of its highest levels of around 33.5 percent at the end of 2026 from 17.6 percent at the end of 2018, Jadwa noted.
(Reporting by Nadim Kawach; Editing by Anoop Menon)
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