Saudi Arabia’s Q1 2026 Budget Deficit Widens to SAR 126 Billion as Spending Surges 20%

Key facts

• Q1 2026 revenues: SAR 261 billion, down 1% from Q1 2025.
• Oil revenues: SAR 144.7 billion, down 3% year-on-year.
• Non-oil revenues: SAR 116.25 billion, up 2% year-on-year.
• Total expenditures: SAR 387 billion, up 20% year-on-year.
• Budget deficit: SAR 126 billion.
• Public debt: SAR 1.66 trillion at end-Q1, up from SAR 1.51 trillion at end-2025.
• Health and social development spending: SAR 80.85 billion, up 12%.
• Infrastructure and transportation spending: SAR 12 billion, up 26%.

Deficit Deepens on Spending Surge

Saudi Arabia recorded a budget deficit of SAR 126 billion in the first quarter of 2026, the Ministry of Finance announced on May 5, as government spending jumped 20 percent year-on-year to SAR 387 billion. Total revenues slipped 1 percent to SAR 261 billion, weighed by a 3 percent decline in oil receipts to SAR 144.7 billion amid softer global energy markets. The deficit marks a significant widening from the same period in 2025, driven by the acceleration of national strategies and projects tied to economic diversification. Non-oil revenues rose 2 percent to SAR 116.25 billion, underscoring continued progress in broadening the fiscal base beyond crude oil, but the increase was insufficient to offset the spending surge.

Oil and Non-Oil Revenue Trends

Oil revenues, which remain the largest single source of income, fell to SAR 144.7 billion from SAR 149 billion in Q1 2025, reflecting lower global crude prices and production levels. Non-oil revenues climbed to SAR 116.25 billion, buoyed by a 17.5 percent jump in shipments (including re-exports) to SAR 63.3 billion in January and February, and a merchandise trade surplus of SAR 36.9 billion over the same period. The Ministry of Finance attributed the non-oil revenue growth to maturing industrial policies and the expanding contribution of manufacturing, which helped drive a 9.8 percent year-on-year rise in industrial production during January and February.

Spending Priorities: Health, Military, Education

The government allocated SAR 80.85 billion to health and social development in Q1, a 12 percent increase from SAR 72 billion a year earlier, reflecting a commitment to citizen welfare as a core policy priority. Military spending reached SAR 64.71 billion, while education received SAR 57.03 billion. Infrastructure and transportation outlays climbed 26 percent to SAR 12 billion, in line with Saudi Arabia’s goal of becoming a global logistics hub. Social benefits expenditure edged up 2 percent to more than SAR 31 billion, supporting household incomes amid the reform drive.

Public Debt Rises to SAR 1.66 Trillion

Total public debt rose to approximately SAR 1.66 trillion at the end of Q1 2026, up from SAR 1.51 trillion at the end of 2025, as the government borrowed to finance the widening deficit. The increase reflects the Kingdom’s reliance on debt markets to fund its ambitious investment agenda under Vision 2030. Despite the rising debt burden, the Ministry of Finance has signaled that the fiscal strategy remains sustainable, with borrowing costs contained by Saudi Arabia’s strong credit ratings and access to international capital markets.

Economist Sees Deficit as Calculated Risk

Economist and university professor Jassem Ajaka described the deficit as a structural outcome of proactive spending policies. “It is the result of a proactive spending policy that uses reserves to finance projects which generate sustainable, future non-oil revenues,” he said in an interview. “Everything being done for financial stability in Saudi Arabia is part of a well-studied plan with clear goals, falling within the framework of Vision 2030. It is part of calculated spending.” Ajaka’s assessment aligns with official statements framing the deficit as a deliberate investment in economic transformation, rather than a sign of fiscal distress. The government has repeatedly emphasized that short-term borrowing supports long-term diversification.

Macroeconomic Context: Growth and Inflation

The deficit figures sit against a backdrop of broad-based economic expansion. Real GDP grew 4.5 percent in full-year 2025, with oil sector activity rising 5.7 percent and non-oil activity up 4.9 percent. Growth of around 4.6 percent is projected for 2026. Inflation remained moderate, with the Consumer Price Index rising roughly 1.8 percent in the first three months of 2026, a level consistent with stable purchasing power. The Purchasing Managers’ Index averaged 53.7 points in the quarter, well above the 50-point expansion threshold, indicating sustained momentum in the non-oil private sector.

Outlook: Balancing Diversification and Fiscal Discipline

The Q1 2026 budget performance highlights the tension between Saudi Arabia’s ambitious diversification goals and the need for fiscal discipline. While non-oil revenues are growing, they have not yet reached the scale needed to replace oil income, leaving the budget vulnerable to energy price fluctuations. With public debt rising and spending continuing to outpace revenue, the government faces the challenge of maintaining investor confidence while funding Vision 2030 projects. The coming quarters will test whether the calculated spending strategy can deliver the promised non-oil revenue streams without exacerbating fiscal imbalances.

The bottom line

• Saudi Arabia’s Q1 2026 budget deficit reached SAR 126 billion as spending surged 20% to SAR 387 billion.
• Oil revenues fell 3% to SAR 144.7 billion, while non-oil revenues rose 2% to SAR 116.25 billion.
• Public debt increased to SAR 1.66 trillion from SAR 1.51 trillion at end-2025.
• Health, military, and education received the largest spending allocations, with health spending up 12%.
• Economist Jassem Ajaka characterized the deficit as a calculated part of Vision 2030’s diversification strategy.
• Real GDP grew 4.5% in 2025, with inflation moderate at 1.8% and the PMI averaging 53.7 in Q1 2026.