Diversification reshapes Saudi Arabia’s fiscal foundations

Saudi Arabia’s latest budget figures highlight the resilience of its economy and the progress of its diversification drive, with rising non-oil revenues and sustained investment in strategic sectors helping reinforce the Kingdom’s fiscal foundations.

The Ministry of Finance’s third quarter 2026 report provides a clear picture of these developments during the first nine months of the year.

Total government revenue reached approximately SR858.9 billion ($229 billion) during the period, up 3 percent from SR835.1 billion in the corresponding period of 2025. Government expenditure, meanwhile, increased by 8 percent to SR1,103.2 billion, compared with SR1,016.8 billion a year earlier.

The resulting deficit of approximately SR244.3 billion reflects the government’s continued commitment to sustaining strategic investment and development spending while maintaining economic stability across economic cycles. This approach incorporates countercyclical fiscal measures to support growth and improve social outcomes, in line with Saudi Vision 2030.

Higher spending was recorded across several priority sectors, including social protection, healthcare, education and defense, underscoring the government's commitment to advancing economic and social development while responding to evolving regional and geopolitical challenges.

Expenditure on social benefits rose by 8 percent to SR92.9 billion, compared with SR86.2 billion in the first nine months of 2025. Spending on health and social development increased by 4 percent to SR230.8 billion, from SR222.2 billion, while education expenditure grew by 2 percent to SR159.3 billion, compared with SR156.8 billion a year earlier.

These allocations reflect the importance attached to strengthening social protection, improving healthcare provision and developing human capital. Investment in these areas remains fundamental to achieving inclusive and sustainable growth under Vision 2030.

Military expenditure also increased, rising by 9 percent to SR187.5 billion from SR172.7 billion in the corresponding period of 2025. Amid heightened regional geopolitical tensions, this allocation reflects the Kingdom’s focus on safeguarding national security, strengthening defense capabilities and developing its domestic military industries.

On the revenue side, the figures point to a continuing shift in the composition of government income. Oil revenue declined by 1 percent to SR446.3 billion during the first nine months of 2026, compared with SR452.4 billion a year earlier. Non-oil revenue, by contrast, rose by 8 percent to SR412.5 billion, up from SR382.7 billion.

The expansion of non-oil revenue is particularly significant as the Kingdom continues to diversify its income sources and reduce its reliance on oil. Annual non-oil government revenue has grown from SR166 billion in 2015, the baseline year for Vision 2030, to approximately SR505.3 billion in 2025.

This increase reflects the impact of sustained diversification efforts, as well as the expanding contribution of private sector activity and investment to the national economy. A broader revenue base is essential to strengthening fiscal resilience and ensuring greater sustainability over the long term.

Beyond the budget figures, the Saudi economy has demonstrated resilience throughout 2026, maintaining its capacity to absorb external shocks and adapt to changing economic and geopolitical conditions. Long-term fiscal planning and strategic investments in infrastructure and logistics have helped strengthen the Kingdom’s economic foundations and its ability to navigate disruptions while sustaining economic activity.

The government remains focused on implementing its economic and fiscal strategies while monitoring developments in global markets and the regional geopolitical landscape. This balanced approach seeks to preserve fiscal stability, provide flexibility in responding to emerging challenges and sustain progress toward Vision 2030 objectives.

The Kingdom’s external position has also improved. The current account deficit narrowed to approximately SR20.1 billion in the first half of 2026, compared with SR61 billion in the corresponding period of 2025, supported by stronger oil exports.

Labor market indicators offered further evidence of economic resilience. The overall unemployment rate declined to 3 percent in the second quarter of 2026, from approximately 3.1 percent in the preceding quarter. Unemployment among Saudi nationals stood at 6.5 percent, highlighting continued improvement in labor market conditions amid external economic challenges.

Business activity indicators likewise pointed to sustained expansion in the non-oil economy. The Purchasing Managers’ Index averaged approximately 54.1 points in the third quarter of 2026, remaining comfortably above the 50-point threshold separating expansion from contraction. The reading signals continued growth in non-oil private-sector activity, supported by domestic demand and positive business sentiment.

Saudi Arabia also maintained strong sovereign credit ratings. Fitch Ratings and S&P Global Ratings assigned the Kingdom an “A+” rating with a stable outlook, while Moody’s maintained its “Aa3” rating, also with a stable outlook. These assessments reflect the agencies’ confidence in the Kingdom’s creditworthiness, fiscal position and broader economic fundamentals.

Taken together, the fiscal and economic indicators for the first nine months of 2026 point to an economy that is continuing to diversify while maintaining investment in strategic development priorities. Although higher expenditure has widened the budget deficit, rising non-oil revenue, expanding private-sector activity, improving labor market conditions and strong sovereign credit ratings demonstrate the resilience of the Kingdom’s economic foundations.

Looking ahead, maintaining fiscal discipline while sustaining strategic investment will be essential. Continued progress in implementing Vision 2030, broadening revenue sources and strengthening the private sector will help reinforce economic resilience, reduce dependence on oil income and secure long-term fiscal sustainability.