Energy
Tuesday, October 1st, 2024 5:51 pm EDT
Key Points
- Revised Economic Projections: Saudi Arabia has significantly reduced its GDP growth forecasts, now expecting only 0.8% growth for 2024, down from a prior estimate of 4.4%. Projections for 2025 and 2026 have also been lowered, indicating a trend of slower economic growth amid higher spending and lower expected oil revenues.
- Increased Budget Deficits: The Saudi government anticipates ongoing budget deficits, projecting a shortfall of 2.9% of GDP for 2024, which is wider than the previous estimate of 1.9%. Deficits for 2025 and 2026 are also expected to be higher, reflecting the kingdom’s priority on spending to support the Vision 2030 plan aimed at diversifying its economy away from oil dependence.
- Rising Fiscal Breakeven Oil Price: The fiscal breakeven price for oil—the price needed to balance the government budget—has risen to an estimated $96.20 per barrel for 2024, significantly above the current Brent crude price. This increase is attributed to escalating government spending and presents challenges as oil prices are projected to remain subdued due to slowing global demand and increased supply.
Saudi Arabia has revised its economic outlook by cutting growth forecasts and raising budget deficit estimates for the fiscal years 2024 to 2026, as it anticipates higher spending amidst lower projected oil revenues. According to the latest pre-budget report released by the Ministry of Finance, the real gross domestic product (GDP) is now expected to grow only 0.8% in 2024, a significant decrease from a previous estimate of 4.4%. Similarly, the GDP growth projections for 2025 and 2026 have been adjusted downward, from 5.7% to 4.6% and from 5.1% to 3.5%, respectively. The report emphasized the Saudi government’s commitment to accelerating regulatory and structural reforms while implementing transformative spending aimed at promoting sustainable economic growth, improving social development, and enhancing the quality of life.
The report also outlined plans to utilize sovereign and development funds for capital investments, empowering the private and non-profit sectors to foster growth. Despite these ambitious initiatives, Saudi authorities foresee the budget remaining in deficit over the coming years, prioritizing spending to meet the targets of the Vision 2030 plan, which seeks to modernize and diversify the country’s oil-dependent economy. The Finance Ministry has projected a wider budget shortfall of approximately 2.9% of GDP for 2024, an increase from the earlier forecast of 1.9%. For the following years, it expects deficits of 2.3% in 2025 and 2.9% in 2026, which also surpass previous estimates.
Moreover, Saudi Arabia’s fiscal breakeven oil price—the price needed per barrel of crude oil to balance the budget—has been rising in recent years. The International Monetary Fund (IMF) estimates that this figure will be around $96.20 for 2024, a 19% increase from the previous year and about 36% higher than the current Brent crude oil price, which was trading around $70.70. This upward trend in breakeven prices comes as oil prices are expected to remain subdued in the medium term, influenced by slowing demand and increased global supply.
In addition to economic adjustments, Saudi Arabia is preparing for significant international events that require substantial expenditure, including the World Cup in 2034 and Expo 2030. The kingdom is also investing heavily in multi-trillion-dollar megaprojects like Neom, which is supported by its sovereign wealth fund, the Public Investment Fund. Commenting on the situation, Tarik Solomon, chairman emeritus at the American Chamber of Commerce in Saudi Arabia, noted the close relationship between Saudi Arabia’s economy and oil prices, stating that economic growth corresponds directly with oil production levels.
Despite a notable increase in public debt, which has grown from approximately 3% of GDP in the 2010s to around 28% today, this level remains low compared to international standards. Reforms aimed at boosting foreign investment and diversifying revenue streams have also been introduced, contributing to a 4.4% year-on-year growth in non-oil economic activity in the second quarter, following a 3.4% increase in the previous quarter.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/10/01/saudi-arabia-slashes-growth-forecasts-sees-wider-budget-deficits.html
