Saudi Arabia recorded a first-quarter fiscal deficit of 125.7 billion riyals ($33.5 billion), a figure that nearly reaches its initial $44 billion target for the entire year. This budgetary strain stems from a 20% surge in government spending as the Kingdom attempts to stabilize its economy against the massive disruptions caused by the ongoing war with Iran.
The conflict, which escalated following strikes on February 28, has severely impacted regional energy infrastructure and choked shipping through the Strait of Hormuz. Although global oil prices have spiked due to these supply concerns, the Kingdom’s oil revenues actually dipped 3% year-on-year to 144.7 billion riyals in the first quarter. Meanwhile, military expenditures jumped 26% to 64.7 billion riyals as the state prioritizes defense and regional security.
Economic growth is feeling the weight of the crisis, with GDP growth slowing to 2.8% from 3.7% the previous year. Non-oil sectors, including the vital tourism industry, are expected to face a sharp slowdown. Despite these headwinds, the Ministry of Finance reported a modest 2% increase in non-oil revenues, reaching 116.3 billion riyals, as the country continues to push its Vision 2030 initiatives.
Economists suggest the full-year outlook may be more balanced than the first quarter indicates. Monica Malik, chief economist at Abu Dhabi Commercial Bank, noted that the significant rise in oil prices starting in March could eventually offset the losses in production volume. While the IMF expects the war’s economic impact to be relatively brief, the Kingdom faces a challenging road ahead after finishing 2025 with a wider-than-anticipated deficit of 276 billion riyals.
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