The kingdom of Saudi Arabia, long accustomed to wielding petrodollars like a conqueror’s sword, is now facing the fiscal hangover of its own making. For years, Riyadh has thrown cash at everything from futuristic megacities to sports franchises, all while pretending the oil price would never falter. But the piper has come to collect, and the tune is distinctly sour.
The numbers tell a grim story. The Saudi budget deficit is set to balloon to 2.9% of GDP this year, up from a modest surplus in 2022. Government spending, which surged by 10% in 2023, shows no sign of restraint. Meanwhile, non-oil growth, the supposed crown jewel of Vision 2030, is slowing. The IMF has already raised an eyebrow, warning that the kingdom’s break-even oil price — the price needed to balance the budget — has crept above $85 per barrel. Brent crude currently hovers around $75. The maths is brutal.
Let us not mince words. This is a classic case of fiscal incontinence. The Saudi sovereign wealth fund, the Public Investment Fund, has become a black hole for capital, ploughing billions into ventures with uncertain returns. The irony is thick: a nation that lectures the world on fiscal responsibility at OPEC+ meetings is itself a model of profligacy. The market is taking note. Bond yields on Saudi debt are creeping higher, reflecting growing risk aversion. Capital flight? Not yet, but the seeds are sown.
Central bank policy offers no comfort. The Saudi Arabian Monetary Authority (SAMA) has been forced to hold interest rates high to defend the currency peg to the US dollar. This chokes domestic investment even as the state borrows to fund its dreams. It is a recipe for stagnation.
The average investor should be wary. For every headline about Neom or a new sports league, there is a growing mountain of debt. The kingdom’s gross debt is expected to hit 30% of GDP this year — a far cry from the 1.5% in 2014. The trajectory is clear: without a sharp correction, Saudi Arabia will face a crisis of confidence.
Fiscal discipline, it seems, is the first casualty of ambition. The kingdom must learn that money does not grow on sand. Until it does, the market will watch, and wait, for the reckoning.
