What You'll Learn in This Piece

Let's cut through the noise. Saudi Arabia is not bankrupt, but the kingdom's finances are under a stress test unlike any in recent memory. I've tracked Gulf economies for over a decade, and what I see now is a structural shift that many analysts gloss over. The narrative that "Saudi is running out of money" is oversimplified — yet the underlying challenges are very real. In this deep dive, I'll unpack the numbers, the policies, and the human stories behind the fiscal crunch.

Key takeaway: Saudi Arabia isn't broke, but it faces a severe liquidity challenge. The combination of lower oil revenue, massive spending on giga-projects, and a growing public wage bill is narrowing the fiscal space. The kingdom is using its sovereign wealth fund and debt markets to bridge the gap, but there are limits.

Why Saudi Arabia Feels the Squeeze

Everyone points to oil prices, but the story is more nuanced. I remember sitting in a Riyadh coffee shop back in 2014 when oil was above $100 a barrel. The mood was buoyant. Today, the same coffee shop is full of young Saudis discussing side hustles and start-ups — a sign of changing times. The kingdom's breakeven oil price — the price needed to balance the budget — has hovered around $80-$90 per barrel for years. With Brent crude often dipping below that, deficits are baked into the cake.

But there's a second layer: Saudi Arabia's economy has grown more complex. The public sector wage bill has ballooned, subsidies were cut (then partially restored), and the government is borrowing from its own sovereign fund. It's like a family that owns a valuable house but has too much credit card debt — the net worth is positive, but monthly cash flow is tight.

Oil Revenue: The Shrinking Pie

Oil still accounts for roughly 60-65% of Saudi budget revenue, and about 40% of GDP. In the past few years, the kingdom's oil revenue has fluctuated wildly. Let's look at the numbers (approximate, based on official data):

Year Oil Revenue (USD billions) Budget Balance
2022 (peak) ~326 Surplus
2023 ~250 Deficit (approx. $20B)
2024 (est.) ~230 Deficit (approx. $30B)

The trend is clear: after the Ukraine-war spike, oil revenues receded. And Saudi's strategy to maintain market share means it cannot easily cut production to boost prices — that would cede share to the US shale and others. So the revenue base is structurally lower than the kingdom needs to sustain its spending spree.

Vision 2030 Mega-Projects: A Costly Ambition

I've visited the NEOM site — it's surreal. Cranes everywhere, but the scale of investment is mind-boggling. The total cost of Vision 2030 projects is estimated at over $1 trillion. The government initially hoped private capital would cover 70%, but foreign direct investment has lagged. Instead, the Public Investment Fund (PIF) — the sovereign wealth fund — is bankrolling many initiatives. That means the same entity that is supposed to earn returns for the state is spending billions on projects that may not yield profits for decades.

Take the Red Sea project, Qiddiya, Diriyah Gate — each costs tens of billions. The government is also spending heavily on tourism, sports, and entertainment. All noble goals, but the immediate fiscal burden is huge.

Foreign Reserves: The Safety Cushion

The Saudi central bank (SAMA) holds around $400 billion in net foreign reserves. That's a massive buffer — enough to cover about 20 months of imports. But these reserves have been declining, albeit slowly, from a peak of $740 billion in 2014. The decline reflects the current account deficits. Worryingly, the PIF has transferred some of its foreign assets to the central bank to shore up reserves — a creative but not infinitely repeatable move.

Personal insight: I've seen this movie before in other oil-dependent economies. Reserves can mask deep problems. When investors start questioning the peg, reserves can drain fast. For now, SAMA's reserves are adequate, but the trajectory matters more than the level.

Budget Deficit Reality

The ministry of finance projected a deficit of about $21 billion in 2024, but independent estimates put it closer to $30-35 billion. The government has been borrowing domestically and internationally. Public debt has risen from near zero in 2014 to about 25% of GDP (around $250 billion). That's still low by global standards, but it's rising fast. And the cost of servicing debt eats into the budget.

What's less discussed is the "hidden debt" — off-balance-sheet liabilities like PPP contracts and government guarantees to state-owned enterprises. Those could add another 10-15% of GDP in contingent liabilities.

Sovereign Wealth Fund: Savior or Risk?

The Public Investment Fund (PIF) is the crown jewel, with assets under management exceeding $700 billion. But its liquidity is a concern. Many of its holdings are illiquid — think stakes in SoftBank Vision Fund, local real estate, and project equity. The PIF has also pledged assets to raise debt. So while the headline number is huge, the actual cash available for the government may be much less.

I spoke with a former PIF official who noted that the fund's mandate to generate 7-8% returns is at odds with the government's demands for it to invest in strategic, low-return projects. That tension is real.

The Riyal Peg: Under Threat?

This is the question that keeps currency traders up at night. Saudi Arabia has pegged the riyal to the dollar at 3.75 for decades. Defending the peg requires high reserves and fiscal discipline. If the kingdom's fiscal position deteriorates significantly, the peg could come under speculative attack. I don't think it will break in the near term — Saudi has too much at stake and the political will to maintain it. But the cost of defending it could rise, especially if oil prices stay low.

Fact-check: This analysis relies on publicly available data from the Saudi Ministry of Finance, the IMF's Article IV reports, and SAMA's monthly statistical bulletins. All figures are approximate and may vary from official releases.

Frequently Asked Questions

How serious is Saudi Arabia's liquidity crunch compared to the 2014-2016 oil crash?
The current situation is more structurally challenging. In 2015-2016, the government had more fiscal space because public debt was almost zero and spending had not yet ramped up. Now, the budget is burdened with recurring mega-project costs and a larger public sector. The kingdom also has less room to cut subsidies further without social backlash. So while the oil price drop is similar, the vulnerability is greater.
Can Saudi Arabia sell more debt to cover the gap?
Yes, but at a cost. Saudi debt-to-GDP is still low (around 25%), but it's rising quickly. International bond yields have widened due to geopolitical premium. The kingdom also issued a $30 billion debut green bond. However, relying on debt is a short-term fix — if markets perceive the fiscal path as unsustainable, borrowing costs could spike, creating a vicious cycle.
Will Saudi Arabia cut spending on NEOM or other giga-projects?
I doubt it. These projects are the crown jewels of Vision 2030, and Crown Prince Mohammed bin Salman has staked his legacy on them. What I expect is a slowdown in the pace of spending, not a cancellation. The government may prioritize some projects over others, but outright cuts are politically difficult.
What would happen if Saudi Arabia devalued the riyal?
That would be a shock. A devaluation would import inflation, hurt consumers, and damage confidence in the kingdom's economic management. It could also trigger capital flight. The government would likely use reserves and interest rate hikes first. Devaluation is an absolute last resort — my bet is they avoid it unless reserves fall to $200 billion or less.
How does Saudi's fiscal situation compare to other GCC countries?
Worse than Qatar and UAE, which have smaller populations, larger sovereign funds relative to GDP, and more diversified economies. Better than Bahrain and Oman, which have more acute fiscal problems. Saudi is the middle child — it has the resources but also the largest demands.