The era of limitless Saudi Arabian state expenditure is drawing to a close. For years, the kingdom has deployed petrodollars with abandon, financing gargantuan projects and maintaining a generous social contract to ensure domestic stability. Now, the bill is coming due.
Vision 2030, the ambitious blueprint for post-oil diversification championed by Crown Prince Mohammed bin Salman, was conceived when crude was trading above $100 a barrel. Today, Brent crude hovers around $70, a price that leaves the Saudi budget in persistent deficit. The International Monetary Fund estimates that Riyadh needs oil at $91 a barrel to balance its books. That gap has forced the government to borrow heavily, with public debt soaring to nearly $300 billion from virtually nothing at the start of the decade.
The spending spree was most visible in the giga-projects: NEOM, the $500 billion futuristic city; the Red Sea tourism resorts; and the entertainment complexes designed to wean Saudis off state handouts. These projects were financed through the Public Investment Fund, which has drawn down reserves and taken on debt. Now, even the PIF is tightening its belt. In recent months, the fund has slowed investment, divested some holdings, and delayed payments to contractors. The message is clear: the party is over.
The kingdom's economic model rests on a delicate balance. Oil revenue funds a vast welfare state that includes subsidised fuel, cheap housing, and generous public sector salaries. In return, the population remains politically quiescent. But as oil income declines, Riyadh has been forced to raise taxes, cut subsidies, and introduce a value-added tax. These measures have stoked inflation and trimmed household purchasing power, risking social unrest. The crown prince's gamble is that economic transformation will generate new jobs and revenue before the old system implodes. The data suggests that gamble is not yet paying off. Unemployment among Saudis remains above 8 percent, and private sector job creation has been sluggish.
Externally, the kingdom faces a more constrained environment. The United States, once a reliable security guarantor, is reducing its military footprint in the Middle East and demanding more from its allies. The war in Yemen has drained billions and damaged Saudi Arabia's international reputation. And the global energy transition poses an existential threat to the country's primary revenue source. Even if oil demand does not peak for another decade, investors are increasingly wary of fossil fuel projects, making it harder for Saudi Aramco to justify new capacity.
The immediate trigger for the current wobble was a series of disappointing economic indicators. GDP growth slowed to 1.2 percent last year, non-oil activity contracted, and foreign direct investment fell short of targets. The government responded by scaling back some Vision 2030 projects and extending timelines. The crown prince's flagship NEOM project has seen its budget slashed and completion date pushed back. Other projects, such as the Qiddiya entertainment city, have been put on hold.
Critics argue that the Saudi model was always unsustainable. The kingdom's rentier economy, they say, encourages inefficiency and stifles genuine entrepreneurship. The lavish spending of recent years merely postponed the day of reckoning. Now, with the fiscal buffer depleted and global interest rates rising, Riyadh has fewer options. It can either cut spending further, risking domestic unrest, or it can accelerate economic reforms, which themselves carry political risks.
In the long term, the kingdom may have no choice but to wean itself off oil. But the transition will be painful, and the margin for error is slim. For now, the era of the Saudi spending spree has ended, and the era of austerity has begun.
