Fitch: Saudi Arabia has the flexibility to adjust its spending to balance its fiscal targets

Fitch Ratings revealed that Saudi Arabia has the flexibility to adjust spending as it seeks to balance capital spending priorities with fiscal targets, and expects the Saudi government to reduce capital and related current spending in 2025.

Fitch Ratings said that the lower dividend announced by Aramco for 2025 is broadly in line with its expectations when it affirmed the Kingdom’s A+ rating with a “stable” outlook last January, and will lead to a corresponding widening of the budget deficit.

The agency said in this context that this is broadly in line with its current view that total dividend payments will average approximately $82 billion annually over the period 2025-2028. According to Fitch, Aramco’s announcement is broadly consistent with its January forecast for the budget deficit to widen to 3.8% of GDP in 2025 and 3.9% in 2026. These forecasts assumed oil prices of $70 per barrel in 2025 and $65 per barrel in 2026.

Fitch also expects the government to cut capital and related current spending in 2025.

It said: “The latest medium-term government fiscal forecasts indicate a decline in the deficit to 2.3% of GDP in 2025, revised from 1.6% in the 2024 budget. We believe the authorities retain the flexibility to adjust spending, particularly on investment, as they seek to balance capital spending priorities with fiscal targets. For example, the recent regular reassessment of projects has led to the reshuffle of some projects.” This flexibility could mitigate the impact on Saudi Arabia’s public finances if oil prices are lower than we expect.

Fitch expects the Kingdom’s oil production to rise by about 10% by 2026, reaching about 10 million barrels per day, “which would lead to an expansion in oil sector GDP of 2.7% in 2025 and 6.4% in 2026. This supports our forecast for economic growth to rise to 3.4% in 2025 and 4.6% in 2026, from 1.3% in 2024.”

It said: “Sovereign net foreign assets and large financial buffers in the form of deposits and other public sector assets remain key strengths of Saudi Arabia’s credit profile.” Fitch Ratings expects government debt-to-GDP to rise to 35.3% of GDP by the end of 2026, up from 29.7% at the end of 2024. This remains well below the median forecast of 55.1% by its peers. Meanwhile, government deposits at the Saudi Central Bank, which include the government’s current account and financial reserves, reached 10.6% of GDP at the end of 2024.