The Kingdom could have a much higher budget deficit than expected: Emirates NBD sees Saudi Arabia recording a budget deficit that is equivalent to 6% of GDP this year, down from its previous forecast of 5.2% and well above the government’s earlier projections of a 2.3% deficit, the bank wrote in a research note (pdf).

The drivers: The bank cites a combination of lower oil prices and recurrent production curbs as the reason behind its forecast, expecting this to weigh on revenues while budget spending continues to rise.

Emirates NBD is not the only one predicting a high deficit: Goldman Sachs economist Farouk Soussa said earlier this month that he expects Saudi Arabia’s budget deficit to widen to USD 67 bn (SAR 251.5 bn), or over 6% of GDP, in a scenario where oil prices average USD 62 per barrel in 2025. The government needed oil at USD 93 a barrel to balance last year’s budget, according to Bloomberg Economics’ Chief Emerging Markets Economist Ziad Daoud.

This could mean more borrowing: “The wider budget deficit will likely entail more public borrowing from Saudi Arabia and the country has already been the largest emerging market issuer of debt so far this year, just as it was in 2024,” Emirates NBD said.

REMEMBER- As of March 2025, Saudi Arabia’s total direct debt reached SAR 1.33 tn (USD 354.3 bn) — SAR 797.1 bn (USD 231.6 bn) in domestic debt and SAR 531.7 bn (USD 141.8 bn) in external debt. This marks a 9.3% increase from the previous year, highlighting the ongoing expansion of the Kingdom's debt portfolio.

The Kingdom will need to step up fiscal consolidation in FY 2025 to accommodate for lower oil prices and hit to revenue from Aramco’s dividend cut, Capital Economics’ James Swanston told EnterpriseAM. “There are already signs of capital spending cuts and expansions to non-oil taxation revenue, namely the wider net of goods subject to VAT,” Swanston added.

Saudi is not alone: Emirates NBD now sees a weighted average budget deficit of 3.6% of GDP in 2025 for the GCC bloc, up from its previous estimate of a budget deficit of 2.51% relative to GDP, and down from an estimated deficit of just 1% of GDP last year. The bank cites lower oil prices across the bloc as the reason behind its revision, saying that lower prices will “drag on budget balances across the GCC.” Only the UAE and Qatar are expected to see a budget surplus in both 2025 and 2026.