Saudi Arabia faces rising oil price challenges amid Vision 2030 spending

Saudi Arabia's fiscal situation has deteriorated significantly, swinging from a surplus of $27.68 billion in 2022 to a deficit of $21.6 billion in 2023. This shift is largely attributed to increased public spending associated with Vision 2030, which aims to modernize the economy and reduce reliance on oil revenues. The International Monetary Fund (IMF) has projected that the kingdom's fiscal breakeven oil price will rise to $80.90 per barrel in 2023 and $96.20 in 2024, indicating a growing need for higher oil prices to balance the budget. The kingdom's reliance on oil is profound, with approximately 75% of its fiscal revenue derived from this sector. Despite having the lowest production costs globally at around $10 per barrel, the increasing breakeven price poses challenges. Analysts suggest that the fiscal breakeven price could reach around $100 per barrel due to anticipated growth in oil supply from other countries and sluggish demand from China, Saudi Arabia's largest oil customer. To manage its budgetary needs, Saudi Arabia has the capacity to increase its public debt, which has risen from 3% of GDP in the 2010s to 24% today. This relatively low debt level, compared to the EU average of 82%, allows the kingdom to take on more debt without significant risk. Additionally, the government has implemented reforms to attract foreign investment and diversify its revenue streams. Despite a contraction in the overall economy for four consecutive quarters, non-oil economic activity showed growth of 4.4% year-on-year in the second quarter of 2023, reflecting some resilience amid the challenges posed by fluctuating oil prices and global economic uncertainties.