Saudi Arabia's budget deficit reached SR34.3 billion in Q2 2026, despite a 12% increase in revenues driven by oil and non-oil income, according to the Ministry of Finance.
Riyadh, Saudi Arabia Jul 31, 2026 ALN: Saudi Arabia recorded a SR34.3 billion ($9.1 billion) budget deficit in the second quarter of 2026 as government revenue rose 12% year-on-year, according to the Ministry of Finance's quarterly budget performance report released Thursday. This deficit highlights the ongoing challenges the kingdom faces in balancing its budget amid fluctuating oil prices and global economic conditions.
Total revenue reached SR338.8 billion ($90.3 billion) during the quarter, while expenditure rose 11% from a year earlier to SR373.1 billion ($99.5 billion). The increase in expenditure reflects the government's continued commitment to funding various sectors critical to the country's development, including health, education, and infrastructure.
Oil revenue, a significant contributor to the Saudi economy, increased 22% year-on-year to SR185.1 billion ($49.4 billion), up from SR151.7 billion in the second quarter of 2025. This rise can be attributed to higher global oil prices and increased production levels. Non-oil revenue also grew 3% to SR153.7 billion ($41 billion), indicating the government's efforts to diversify its revenue sources away from oil dependency.
The second-quarter performance lifted total government revenue for the first half of 2026 to SR599.8 billion ($159.9 billion), a 6% increase from the same period last year. This growth is essential for Saudi Arabia as it seeks to stabilize its economy and reduce reliance on oil revenues.
Oil revenue accounted for SR329.8 billion ($88 billion) of first-half revenue, up 9% year-on-year, while non-oil revenue reached SR269.9 billion ($72 billion), an increase of 2%. The relatively modest growth in non-oil revenue suggests that while efforts to diversify the economy are underway, they have not yet fully compensated for fluctuations in oil revenue.
Among non-oil revenue sources, taxes on goods and services rose 5% to SR154.1 billion ($41.1 billion), while taxes on income, profits, and capital gains increased 2% to SR20.9 billion ($5.6 billion). However, revenue from taxes on international trade and transactions declined 13% to SR10.3 billion ($2.8 billion), reflecting potential challenges in global trade dynamics and the impact of economic policies.
Government expenditure totaled SR759.8 billion ($202.6 billion) during the first half of the year, up 15% from the same period in 2025, resulting in a cumulative deficit of SR160 billion ($42.7 billion). The first-quarter deficit stood at SR125.7 billion ($33.5 billion). This increasing trend in expenditure is indicative of the government's strategy to invest significantly in infrastructure and social services to support economic growth and job creation.
Capital spending on non-financial assets rose 16% in the second quarter to SR46.2 billion ($12.3 billion). This increase is part of Saudi Arabia's broader Vision 2030 initiative, which aims to transform the economy and reduce dependence on oil by investing in various sectors, including tourism, entertainment, and technology. Compensation for employees increased 3% to SR144.4 billion ($38.5 billion), reflecting the government's commitment to maintaining employment levels and supporting public sector workers.
Additionally, financing costs climbed 41% to SR16.8 billion ($4.5 billion), which may be attributed to rising interest rates and increased borrowing to cover the budget deficit. Social benefits rose 8% to SR42.5 billion ($11.3 billion), underscoring the government's commitment to social welfare programs aimed at improving the quality of life for its citizens.
The report showed the government continued to prioritize spending on key sectors. Health and social development received SR170.6 billion ($45.5 billion) during the first half of the year, equivalent to 66% of its annual allocation. Military spending reached SR124.6 billion ($33.2 billion), while education expenditure totaled SR109.7 billion ($29.3 billion). Spending on economic resources increased 24% year-on-year to SR56.5 billion ($15.1 billion), reflecting a strategic focus on enhancing the country's economic capabilities.
The Ministry of Finance stated that the entire first-half deficit was financed through borrowing without drawing on government reserves. The state's general reserve stood at SR399.1 billion ($106.4 billion) at the end of June, while the current account balance totaled SR39.9 billion ($10.6 billion). This approach demonstrates the government's strategy to manage its finances while maintaining a buffer of reserves for future contingencies.
Public debt rose to SR1.685 trillion ($449.3 billion) by the end of the first half of 2026, compared with SR1.519 trillion ($405.1 billion) at the beginning of the year. Of the total, SR1.06 trillion was domestic debt and SR624.9 billion was external debt. The rising public debt levels raise concerns about long-term fiscal sustainability, especially as the government continues to finance its deficits through borrowing.
Saudi Arabia's 2026 state budget projects annual revenue of SR1.147 trillion ($306 billion), expenditure of SR1.313 trillion ($350.1 billion), and a fiscal deficit of SR165.4 billion ($44.1 billion). These projections indicate that while the government is optimistic about revenue growth, it also acknowledges the need for careful management of expenditures to avoid exacerbating the deficit situation.
The implications of these financial trends are significant for Saudi Arabia's economic future. The kingdom's reliance on oil revenue remains a critical concern, particularly given the volatility of global oil markets and the ongoing transition towards renewable energy sources. The government's efforts to diversify its economy are crucial not only for achieving fiscal stability but also for ensuring sustainable long-term growth.
As the country moves forward, it will be essential for the Saudi government to implement effective fiscal policies that balance the need for investment in key sectors with the necessity of maintaining fiscal discipline. The ability to adapt to changing economic conditions and to effectively manage public debt will be pivotal in shaping the kingdom's financial landscape in the coming years.
In conclusion, while the second-quarter budget deficit reflects ongoing challenges, the growth in both oil and non-oil revenues indicates that there are positive developments in the Saudi economy. The government's commitment to investing in critical sectors and its strategic approach to managing public finances will be vital as it navigates the complexities of the global economic environment.
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