Saudi Arabia stays the course amid global turbulence

As geopolitical tensions intensify and global uncertainty disrupts supply chains, fuels market volatility and drives up energy prices, governments worldwide are facing mounting pressure on growth and fiscal stability. Against this backdrop, Saudi Arabia’s first quarter 2026 budget results offer more than a routine fiscal update — they provide a clear signal of strategic confidence, economic resilience and long-term policy discipline.

The Kingdom has adopted a distinctly countercyclical fiscal approach, accelerating spending at a time when many economies are turning cautious. Government expenditure rose 20 percent year on year to SR387 billion ($103.2 billion) in the first quarter, while total revenues edged down by just 1 percent to SR261 billion from SR264 billion in the same period last year.

This divergence is neither accidental nor symptomatic of structural weakness. Rather, it reflects a deliberate policy choice: to sustain momentum behind Vision 2030 and continue investing in transformative projects that deepen economic diversification, strengthen infrastructure and reinforce long-term fiscal sustainability.

The composition of spending highlights the government’s strategic priorities. Infrastructure and transportation expenditure increased by 26 percent to SR12 billion, compared with roughly SR10 billion in Q1 2025, reinforcing Saudi Arabia’s ambition to position itself as a leading global logistics and trade hub.

At the same time, development spending has not come at the expense of social welfare. Social benefits rose by 2 percent to more than SR31 billion, reaffirming the government’s commitment to protecting citizens and supporting quality of life. Expenditure on health and social development climbed 12 percent to approximately SR81 billion, underscoring the leadership’s continued focus on placing people at the center of national development.

Naturally, this expansionary fiscal stance widened the budget deficit to approximately SR126 billion in Q1 2026. Yet the broader macroeconomic picture remains reassuring. Inflation increased by only 1.8 percent compared with the same period a year earlier, indicating relative price stability despite elevated global inflationary pressures. Maintaining moderate inflation while significantly increasing expenditure reflects the resilience and adaptability of the Saudi economy.

The budget figures also highlight the Kingdom’s steady progress in reducing its dependence on oil revenues. Oil revenues declined by 3 percent year on year to SR145 billion, compared with SR150 billion in Q1 2025. In contrast, non-oil revenues rose 2 percent to approximately SR116 billion, supported by stronger non-oil economic activity and the continued expansion of diversified sectors.

This shift is central to Saudi Arabia’s long-term economic transformation. Real GDP expanded by 4.5 percent in 2025 compared with the previous year, driven by strong growth in both oil and non-oil sectors, which grew by 5.7 percent and 4.9 percent, respectively. Growth is expected to remain robust, with GDP projected to expand by around 4.6 percent by the end of 2026.

The Kingdom’s continued investment in infrastructure carries particular strategic significance amid evolving geopolitical realities. Recent regional developments have underscored the importance of resilient supply chains, modern transport networks and strong domestic capabilities. By sustaining investment in these sectors, Saudi Arabia is not only supporting near-term growth but also strengthening its ability to navigate future global disruptions.

Equally important is the government’s disciplined fiscal management. While deficits have increased to support transformational spending, public debt levels remain sustainable and well within the Kingdom’s financial capacity. Saudi Arabia continues to benefit from strong sovereign credit ratings and substantial fiscal buffers, enabling it to finance development projects on favorable terms.

Notably, more than 90 percent of the Kingdom’s 2026 borrowing requirements had already been secured before the latest geopolitical tensions emerged, reflecting prudent planning and strong execution capabilities. Government reserves remain robust at approximately SR401 billion, while total foreign reserves rose 10 percent by the end of February 2026 to nearly SR1.786 trillion, supported by a sharp increase in foreign currency holdings and overseas deposits.

These figures reinforce confidence in the Kingdom’s long-term fiscal sustainability and institutional strength. More importantly, they demonstrate a willingness to prioritize strategic investment over short-term fiscal consolidation.

Saudi Arabia’s fiscal policy is therefore not merely focused on balancing accounts; it is designed to reshape the economy. The continued rollout of major projects and reform initiatives aligned with Vision 2030’s pillars — a vibrant society, a thriving economy and an ambitious nation — reflects a broader commitment to building a more diversified, competitive and resilient economic model.

• Talat Zaki Hafiz is an economist and financial analyst. 

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