Saudi Arabia's Wider Budget Deficits Loom Despite Higher Oil Prices

Saudi Arabia's budget deficit is expected to widen for several years due to increased spending on defense and infrastructure projects. The kingdom has been ramping up its military capabilities and building trade routes that bypass the Strait of Hormuz, despite regional conflict and Iranian threats.

The government's preliminary budget shows a 4.9% budget deficit this year, up from 3.3% predicted late last year. Oil prices have offset lower export volumes, lifting revenue above prewar estimates, but spending is set to rise faster.

Riyadh has been able to maintain oil exports by piping crude to the Red Sea and sending tankers through Hormuz, but the economy is expected to shrink 3.6% this year due to falling oil output.

The Finance Ministry warns that government debt could breach its 40%-of-GDP ceiling before the decade is out if growth doesn't pick up, with a potential rebound of almost 13% in 2027 if oil flows are restored.