Saudi Arabia's ambitious future hinges on borrowing as oil prices stay low

In a recent article, Oil Price.com highlights that as Saudi Arabia moves forward with its ambitious Vision 2030 initiative, aimed at developing futuristic cities and reducing reliance on oil, the Kingdom is finding itself increasingly dependent on borrowing due to persistently low oil prices. 

The world’s largest oil exporter is facing a fiscal gap, with oil prices currently around $20 per barrel below the country’s fiscal breakeven price.

Saudi Arabia, a key player in the OPEC+ production cuts, is beginning to ease some of these cuts on April 1, with plans to increase production by 138,000 barrels per day this month. Despite this, oil prices, which have been hovering in the low $70s per barrel, remain well below the $91 per barrel that the International Monetary Fund (IMF) estimates is needed to balance the Kingdom’s budget.

The combination of rising OPEC+ output and ongoing global trade uncertainties could put further downward pressure on oil prices. Saudi Arabia is now facing the possibility of a prolonged period of lower-than-breakeven prices, which could necessitate increased borrowing. Analysts warn that the Kingdom may be forced to either raise more debt to cover planned expenditures or scale back investments in mega projects, including those tied to Vision 2030.

Adding to the Kingdom's fiscal pressure, oil giant Aramco recently announced a 30 per cent cut in its dividend payouts for 2025. This decision will reduce the income Saudi Arabia receives from its significant stake in the company, impacting its revenues, as Aramco is the country’s largest cash generator. Saudi Arabia holds nearly 81.5 per cent of Aramco directly, and an additional 16 per cent through its sovereign wealth fund, the Public Investment Fund (PIF).

In its 2025 budget statement, Saudi Arabia projects total expenditures of $342 billion (1.285 trillion riyals), while anticipated revenues are expected to fall short at $316 billion (1.184 trillion riyals). This results in a projected deficit of $27 billion (101 billion riyals), or about 2.3 per cent of the country's GDP. To bridge the gap, Saudi Arabia plans to issue additional debt this year, aiming to finance key projects and Vision 2030 programs.

Fitch Ratings noted that Saudi authorities have the flexibility to adjust investments and recalibrate projects as needed, given the challenging fiscal outlook. However, lower investment spending could undermine efforts to diversify the economy away from oil dependence.

Uncertainties in the global oil market, exacerbated by shifting US trade policies and the potential for slower global economic growth, add further complexity to Saudi Arabia’s financial planning. As oil prices remain subdued, the Kingdom faces the difficult decision of either borrowing more to fund its ambitious projects or delaying key investments, both of which will have long-term implications for its economic transformation.

By Naila Huseynova