Saudi Deficit Widens as Military Spending Climbs

Saudi Arabia spent SR1,103.2 billion in the first nine months of 2026, while government revenue reached SR858.9 billion, leaving a deficit of approximately SR244.3 billion, according to the Ministry of Finance's third quarter 2026 report. The figures show the scale of the state’s choices: expenditure rose 8 percent from the corresponding period of 2025, and military spending climbed 9 percent to SR187.5 billion.

Revenue increased 3 percent from SR835.1 billion a year earlier. The deficit widened as spending grew faster, even with non-oil revenue rising and oil revenue declining. Budgets are not abstractions; they show which institutions command public resources and where that money goes.

The Budget’s Priorities

Social benefits spending increased 8 percent to SR92.9 billion, while health and social development spending rose 4 percent to SR230.8 billion. Education spending increased 2 percent to SR159.3 billion. The report said spending supported development and responded to regional and geopolitical challenges, while reflecting countercyclical fiscal measures and Saudi Vision 2030. Military expenditure reached SR187.5 billion, up from SR172.7 billion in the first nine months of 2025.

Oil revenue fell 1 percent to SR446.3 billion, from SR452.4 billion. Non-oil revenue rose 8 percent to SR412.5 billion, compared with SR382.7 billion. Annual non-oil government revenue increased from SR166 billion in 2015, the Vision 2030 baseline year, to approximately SR505.3 billion in 2025. The article attributes the broader revenue base to diversification, private-sector activity and investment, and says infrastructure and logistics investment helped the economy absorb external shocks.

The current account deficit narrowed to approximately SR20.1 billion in the first half of 2026, from SR61 billion in the same period of 2025, supported by stronger oil exports. The overall unemployment rate fell to 3 percent in the second quarter of 2026 from approximately 3.1 percent in the preceding quarter. Unemployment among Saudi nationals was 6.5 percent. The Purchasing Managers' Index averaged approximately 54.1 points in the third quarter, above the 50-point threshold separating expansion from contraction.

Ratings, Oil and Political Risk

Fitch Ratings and S&P Global Ratings assigned Saudi Arabia an “A+” rating with a stable outlook. Moody's maintained its “Aa3” rating, also with a stable outlook. Talat Zaki Hafiz, an economist and financial analyst, said the first nine months' figures showed diversification and continued strategic investment, while higher expenditure had widened the deficit. He said fiscal discipline, continued implementation of Vision 2030, broader revenue sources and a stronger private sector would matter for long-term resilience and fiscal sustainability.

Oil could settle around $80-$85 a barrel in a post-war environment, Paul Donovan, chief economist at UBS Global Wealth Management, told The National in an interview in Abu Dhabi. “I think we're looking at, as it were, a fundamental fair value for the oil price is probably around $80, $85 a barrel, something like that,” he said. “That's where we probably settle ... in a postwar environment.” Monday's oil-price fall removed some geopolitical risk from the market, Donovan said, but didn't change supply-and-demand fundamentals. Oil fell more than 7 per cent after the presidents of the US and Iran signaled openness to a diplomatic solution.

The US midterm elections brought another institutional calculation into view. Democrats won control of the House of Representatives and Senate on Tuesday. Donovan said a Democratic Senate could slow confirmation of President Donald Trump's Federal Reserve nominees, since Fed governors require Senate confirmation. “For the most part, I don't care about ... ambassadorships or frankly even cabinet posts most of the time, but the Federal Reserve ... that matters,” he said.

The Forecast Has Conditions

Donovan expected no more than one rate increase in 2027, if any. He described inflation as a series of temporary shocks, including pandemic-era supply-chain disruption, Russia's invasion of Ukraine, tariffs and the war in the region. “It's a series of very distinct, discrete temporary effects,” he said. He said the tariff effect was already fading in US figures, and oil could follow. If oil prices were flat or slightly lower than a year earlier by the second quarter of next year, inflation could return quickly to a more normal level. “So it is contingent on the oil price coming down,” he said.

US consumers, Donovan said, used savings rather than cutting other spending to absorb higher oil prices. “They cut back on savings,” he said, leaving a thinner cushion and less readiness for another shock. On productivity, he criticized new Federal Reserve chairman Kevin Warsh's optimism. “I do not believe in the productivity pixie, I'm afraid,” Donovan said. The forecast, like the budget, rests on decisions and conditions beyond any single official’s control.