Saudi economy forecast to shrink and deficit to widen

• Real GDP projected to fall 3.6%
• Iran war hits oil revenues
• Continued focus on Vision 2030

The Saudi Ministry of Finance expects the economy to contract this year and the budget deficit to widen next year as regional conflicts take their toll.

Real GDP is projected to fall 3.6 percent this year, driven by declining oil activity.

Crude production has fallen this year following disruptions to Saudi maritime export routes through the Strait of Hormuz and the Bab al-Mandab Strait. In August, production fell to its lowest level since 1990.

The Ministry also forecasts that the fiscal deficit will grow to SAR190 billion ($51 billion) in 2027, SAR26 billion above the 2026 estimate, the finance ministry said in a pre-budget statement.

It attributed rising government spending in the coming years to continued investment in its Vision 2030 development goals and efforts “to face economic and geopolitical changes”.

The US-Iran war, now in its seventh month, has severely affected the Saudi Arabian economy. The near-closure of sea lanes used for exports has led to a drop in oil revenues.

Riyadh’s crude exports have reached their highest level since the Iran war began, following the reopening of the East-West pipeline, maritime agency Kpler told AGBI. The pipeline was damaged in a drone attack, launched from Iraq earlier this month.

Total expenditures are estimated at nearly SAR1.4 trillion, while total revenues are forecast at SAR1.2 trillion in 2027, the statement said.

Oil loadings averaged 8.5 million barrels per day over the past week, according to Kpler – about one-third more than Saudi Arabia exported on average in 2025.

Real GDP growth is projected to reach 12.8 percent in 2027, driven by increased oil activity. Saudi Arabia values oil activity in its real GDP figures based on prices from the previous year.

The statement also projects inflation to rise to 2.1 percent in 2026, up from 1.8 percent through July.

Further reading:

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• Red Sea disruption threatens Saudi petchems’ recovery

Finance minister Mohammed Al-Jadaan said the government plans to cover the 2027 deficit through continued domestic and international borrowing, including bonds, sukuk – Shariah-compliant financial instruments – and loans, in line with its medium-term debt strategy. The ministry will disclose next year’s borrowing plan by year-end.

The government had raised its borrowing estimate for 2026 by almost 56 percent year on year to SAR217 billion.

The statement added that the government continues to work toward its Vision 2030 goals by directing spending toward development priorities, improving spending efficiency, stimulating investment and empowering the private sector.

The government expects total spending to reach SAR1.47 trillion in 2028 and SAR1.55 trillion in 2029. Revenue is projected at SAR1.3 trillion and SAR1.35 trillion, respectively.