Fitch previews Saudi Arabia’s fiscal outlook in 2027 pre-budget statement

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Fitch Ratings said, in a report that Saudi Arabia’s 2027 pre-budget statement (PBS) illustrates the fiscal pressures facing the sovereign since the US-Iran war, as it projects higher spending and wider deficits, says Fitch Ratings. However, it projects deficits will narrow until 2029 and be smaller than Fitch’s forecasts.

The government issued the PBS on 30 September. It projects the fiscal deficit for 2026 at 4.9% of GDP. This is above the target set in the 2026 budget but below the 2025 outturn of 5.8%. The wider deficit is in line with the historical pattern. The PBS deficit projection has averaged 1.9% of GDP higher than the original budget over the past three years, according to the report.

The PBS projects higher revenues than budgeted, with higher prices for Saudi crude outweighing production disruption. It expects nominal revenues in H2 2026 to be virtually flat compared with H1 2026. It projects spending to be 9.3% over budget, implying sustained restraint after precautionary front-loading caused a sharp increase in Q1 2026, said the ratings agency.

Fitch further noted that its latest published forecast, dating from Sept. 29, is for a deficit of 6.2% of GDP for 2026, as it anticipates higher spending and lower revenues than the authorities.

The PBS data implies a cut in spending in H2 2026 compared with H1 2026, whereas quarterly spending tends to peak in the fourth quarter and actual spending has tended to overshoot PBS projections. Expenditure projections appear based on lower oil production forecasts than Fitch’s, with the PBS projecting a 21.8% fall in real oil-sector GDP compared with our projection of 16.7%.

The PBS has revised deficit projections upward for 2027 and 2028 relative to the 2026 budget, to 3.6% of GDP (from 2.3%) for 2027 and 3.1% (from 2.2%) for 2028, largely reflecting higher spending.

Fitch assumes this includes additional expenditure to support logistics corridors, military spending and counter-cyclical stimulus.

Moreover, the PBS places more emphasis on spending efficiency than in recent years and Fitch expects curtailed growth in current spending. However, it thinks it will be difficult for the government to achieve absolute cuts.

The ratings agency also indicated that its 2027 deficit projection of 3.7% is close to the official target, but it expects the deficit to widen to 4.4% in 2028 based on its projections that Brent crude will fall to an average of $60 per barrel from $70 per barrel in 2027.

According to Fitch, official projections for 2029 show a widening of the deficit to 3.3% in 2029. This is the largest deficit projection in the outer year of the three-year projection period in any PBS. It results from higher spending, likely in the context of 2030 targets. The statement continues to reference the government’s Vision 2030 policy agenda heavily. This may contribute to the 5.7% official growth forecast for the year, up from 3.9% in 2028.

The PBS did not publish a revised debt path. However, we see the deficit projections as consistent with debt/GDP of around 39% at end-2028, still below the 58% median for ‘A’ category sovereigns, from around 32% at end-2025. This is below our forecast of 42.5%, based on lower nominal GDP than the PBS, according to the report.

Fitch also views conflict-related disruption to oil revenues as the greatest risk to the PBS fiscal projections. It calculates that the growth projections are consistent with average oil production of around 10.6 million barrels per day in 2027.

It highlighted that third-party sources report Saudi production was running above this at end-September after flows through the East-West pipeline were fully restored, noting that the rapid restoration of flows highlights the technical capacity in the energy sector, while the diversity of oil export routes supports energy sector resilience.