"Abu Dhabi Commercial Bank" Expects Saudi Budget Deficit to Decrease Despite Increased Spending

SadaNews - Abu Dhabi Commercial Bank expects the Saudi budget deficit for the year 2026 to decrease more than previously anticipated before the outbreak of the Iran war, driven by rising oil prices, despite increased government spending and a slight decline in revenues during the first quarter.

Monica Malik, the bank's chief economist, estimated in a report published on Wednesday that oil revenues will rise during the remaining period of the year due to the "significant increase" in prices and the Kingdom's ability to direct a large portion of its exports through the East-West pipeline.

The bank's forecasts before the onset of the conflict indicated a budget deficit of 5.3% of GDP, compared to 5.8% in 2025.

These estimates align with the context of the Saudi economy - which exceeds one trillion dollars - being able to absorb the shock from the military conflict in the Middle East, which has led since the outbreak at the end of February to a decline in growth rates and rising global consumer prices due to the disruption of energy supplies through the Strait of Hormuz.

Data from the Ministry of Finance on Tuesday showed that the budget deficit in the first quarter rose to its highest level since the end of 2018, amid a slight decline in revenues and a 20% increase in spending, driven by significant increases in investment spending and subsidies.

Oil Revenues More Important than Production Volume

However, Malik, considered one of the prominent researchers specializing in the Saudi economy, expected oil prices to remain at levels higher than they were before the outbreak of the war, along with the anticipated increase in Aramco's payments to the public treasury, which could offset the impact of declining exports, according to the report.

Several analysts attributed the 3% decline in the government's oil revenue during the first quarter to the low price levels during January and February, along with the usual time lags between exporting and receiving payments, which can typically take about a month, in addition to the time required for the Kingdom to reach maximum capacity on the East-West pipeline.

While Malik anticipated an impact on GDP data in the second quarter due to reduced oil production, she noted that revenues remain more important than the growth rate of oil production. She also expected the non-oil sector to achieve "positive real growth" this year "because it is driven by domestic demand, and the story of growth supported by the public sector is less susceptible to fluctuations in external demand".

However, Malik indicated that foreign investments are still important for Saudi Arabia's economic diversification plans, adding that while the Kingdom has faced relatively limited damage during the war, "any geopolitical issues may affect foreign investment".