Saudi Arabia Faces Tough Fiscal Choices as Oil Price Slump Strains Vision 2030 Plans

Saudi Arabia, whose economic foundation remains tightly bound to oil revenues, is under growing pressure to either ramp up debt issuance or slash government spending following a sharp fall in crude prices. The recent plunge is complicating Riyadh’s efforts to finance its sweeping Vision 2030 reform agenda, aimed at transitioning the kingdom away from its long-standing dependence on oil.

Oil prices have dropped to their lowest levels in nearly four years amid fears that a trade war will drag down global growth. That downturn was exacerbated by a surprise move from several OPEC+ producers, including Saudi Arabia, to increase output. The resulting revenue hit could wipe out tens of billions of dollars in income for the kingdom, including a substantial reduction in expected dividends from the state-run oil giant Saudi Aramco.

The International Monetary Fund and other economic analysts estimate that Saudi Arabia needs oil to be priced above $90 a barrel to maintain a balanced budget. This week, benchmark Brent crude slipped below $65 per barrel.

While Vision 2030 is technically funded off-budget, the Saudi government must still finance massive infrastructure projects tied to the initiative, which aims to eliminate what officials have described as an “oil addiction.” The $925 billion Public Investment Fund (PIF), which leads the charge on Vision 2030, remains partially reliant on oil—particularly through its holdings in Aramco.

“Saudi Arabia is likely to rely on debt financing, and it will have to delay or scale back some planned contracting awards given 2024 was already in a twin deficit,” said Karen Young, a senior research scholar at Columbia University’s Center on Global Energy Policy, pointing to both fiscal and current account shortfalls.

Young noted that even before the recent U.S. tariffs announcement, analysts had anticipated that Saudi Arabia’s public debt would grow by $100 billion over the next three years. The country’s public debt rose 16 percent in 2024, reaching more than $324 billion, according to official figures.

Aramco’s dividends are expected to fall by a third this year. Reuters estimates suggest the Saudi government and PIF will receive approximately $32 billion and $6 billion less, respectively. Oil contributed 62 percent of government revenues last year, and while Riyadh has not yet disclosed its oil revenue forecast for 2025, its November budget projects an overall 3.7 percent decline in total revenue.

Analysts expect that PIF will also need to secure additional financing. Last year, Governor Yasir Al-Rumayyan said the fund aims to increase annual investments from the current $40–50 billion to $70 billion between 2025 and 2030. PIF declined to comment on the matter.

Saudi Arabia was one of the biggest emerging market debt issuers last year. The government has already raised $14.4 billion in bonds so far in 2025. PIF, which borrowed $24.8 billion in 2024 through loans and bond offerings, has already tapped markets for another $11 billion this year. Other state-backed entities have followed suit, issuing billions more.

The PIF has poured vast sums into the domestic economy, funding ventures that range from a camel dairy firm to NEOM, a colossal futuristic city planned for the desert. Upcoming projects include hosting the 2029 Asian Winter Games—featuring artificial snow and a man-made freshwater lake—and the 2034 World Cup, which will necessitate the construction of 11 new stadiums and the refurbishment of existing ones.

A spokesperson for the finance ministry said the government is “recalibrating and prioritising” expenditures to ensure that both the economy and the private sector can “catch up” without overheating. “We are assessing the recent developments and stand ready to take whatever policy decisions needed to ensure that our fiscal position remains strong,” the spokesperson added.

Despite current fiscal pressures, the ministry insisted that most Vision 2030 goals are either already met or on schedule: “We remain confident that most of our vision targets are either achieved or on track and we will deliver on the key events we are hosting.”

The oil price collapse comes at a time of broader geopolitical upheaval, as U.S. President Donald Trump continues to reshape global economic norms that have stood since the end of World War II. Trump has repeatedly pressed Saudi Arabia to lower oil prices and has encouraged the kingdom to invest $1 trillion into the U.S. economy. He is expected to visit Saudi Arabia, Qatar, and the UAE in May during his first overseas trip.

Neil Quilliam, associate fellow at the Middle East and North Africa Programme at Chatham House, said the drop in oil prices “will likely lead to additional re-prioritisation of major projects, further rationalisation, revision of delivery timelines and a reduction in project work forces.” Nevertheless, Quilliam believes that the government views the short-term sacrifices as acceptable given the anticipated long-term benefits. He pointed out that Saudi Arabia maintains a relatively low debt-to-GDP ratio and enjoys high levels of lender confidence.

In a show of continued strength, S&P Global Ratings upgraded Saudi Arabia’s credit rating to ‘A+’ from ‘A’ last month. However, the agency noted that further unfavorable oil price movements and more debt-financed investments could put downward pressure on that rating in the future.

By fLEXI tEAM