Saudi Arabia is on track to record a 5.5% growth in non-oil real gross domestic product (GDP) in the next two years.
A new report released by Moody’s credit rating agency, cited by Arab News, said that the increased government spending will drive this expected rise in the Kingdom’s GDP.
Non-oil GDP Growth
The Moody’s report projected that Saudi Arabia’s non-oil GDP will grow between 5% and 5.5% in the period from 2025 to 2027. This marks a notable improvement from the 4.6% growth achieved in 2022-2023. It also represents a substantial increase from the 1.5% recorded between 2017 and 2019.
The report noted: “While we expect non-hydrocarbon economic activity to remain robust, downside risks to oil prices and production levels will amplify the trade-off between implementing diversification projects and maintaining a robust fiscal position and sovereign balance sheet.”
Increased Government Spending
According to the credit rating agency, the recent trends indicate that the Saudi government spending will likely remain at high levels, at around 30% to 32% of the GDP during 2025-2027. The increased government spending will play a critical role in supporting the economic diversification plans.
“The relatively high level of spending, which will likely have an increased allocation to capital expenditure, will support non-hydrocarbon economic growth and the gradual reduction of the kingdom’s exposure to long-term global carbon transition,” it said.
Economic Diversification
Moody’s report underscored the role of the Saudi Public Investment Fund (PIF) in the economic diversification efforts undertaken by the Kingdom, in line with its transformative Vision 2030. It further noted that the PIF could be crucial in mitigating the impacts of economic challenges when oil prices drop.
It said: “The PIF’s role may reduce some of the implementation risks to economic diversification in the event of lower oil prices and production. Continued robust growth in non-hydrocarbon private-sector activity would also provide momentum to the diversification efforts.”
Pre-Budget Statement
The Saudi Ministry of Finance issued the Preliminary Budget Statement (Pre-Budget Statement) for the fiscal year 2025 on September 30, 2024. It emphasized the focus on advancing economic diversification and social programs, which is evident in the government’s spending policies.
Expenditures are expected to reach SAR 1,285bn in FY2025, with government spending amounting to SAR 1,429bn by 2027. These figures are driven by the Saudi government’s efforts to deliver Vision 2030’s objectives through implementing reforms.
As a result, the government intends to focus its spending on specific projects and strategies in targeted sectors, while maintaining spending on essential services for citizens and residents.
Moreover, the Pre-Budget Statement indicated a 4.6% growth in the real GDP for FY2025, driven by an increase in the GDP of non-oil activities, such as tourism, entertainment, logistics, transportation and industry.
Anticipated Growth
In another analysis, the Standard and Poor’s (S&P) Global Ratings predicted that Saudi Arabia’s GDP will grow by 1.4% in 2024, and accelerate to 5.3% in 2025. This anticipated growth will benefit from the Kingdom’s ongoing diversification strategy, which focuses on bolstering the non-oil private sector and reducing reliance on oil revenues.
Furthermore, the S&P Global report noted that emerging markets, such as Saudi Arabia, could benefit from the potential US Federal Reserve rate cuts. This, in turn, could enhance growth fundamentals and boost capital inflows.
