Saudi Arabia’s economy broadens as public spending powers reform

In turn, that is helping create wider investment opportunities, boosting the state-backed initiatives already underway, which have been leading the Vision 2030 reforms.

Reform costs money and government spending rises

The Kingdom reported an overall deficit of $773mn for the first quarter of 2023, or 2.9bn riyals. Revenues were $74.9bn, with expenditure of $75.7bn.

It came as government spending rose by 29% year-on-year for the period, as part of the move to re-tool the Saudi economy away from its high level of oil dependence as financial and other forms of reform progress.

Revenues were up modestly overall, by about 1%, despite a decline in oil prices during the period. Overall oil revenues fell 3% to $47.6bn, or 178.6bn riyals.

The impact of the Vision 2030 reforms showed up in a rise in non-oil revenues – of 9% to $27.28bn, helping offset the decline in oil revenues and helping the overall revenue rise.

The share of non-oil revenues was also up at 36%, by two percentage points year-on-year. 

The reforms helped non-oil economic activity grow by 5.8%, heading toward the 2030 target of 65%. They also meant that capital expenditure rose 75% to $6.9bn, or 26bn riyals.

National reserves untapped

Operational expenditure rose by a quarter overall driven by a 70% increase in spending on goods and services to $14.4bn. The rise reflected increased government spending on social support, with benefits expenditures up 52% to $5.12bn, or 19.2bn riyals.

The overall deficit was fully funded from external debt, not from national reserves. The level of the deficit is not a cause for concern, with public finances in robust shape.

That means the Kingdom has room for its expansionary fiscal policy as it reforms the basis of its economy.   Public debt fell overall, by 3%, to $256.6bn, or 27.8bn riyals.

Economic diversification cushions the Covid blow

Economic diversification meant the Kingdom was better-placed to cope with the impact of the Covid-19 pandemic and the subsequent tightening of monetary policy around the world.

At a difficult time for the global economy, Saudi Arabia has recorded some of the best growth rates among G20 nations.

Alongside the Vision 2023 programme, the Public Investment Fund has helped boost investment opportunities for the private sector, opening the way for small and medium sized enterprises to lift their contribution to the economy.

That, in itself, is an important part of Vision 2030 policies, which aims to transform the size of the overall contribution of small businesses to the economy.

Private sector key to job creation

Higher growth and an economic boom creates jobs and lifts state revenues simultaneously. Successful government policies to boost growth pay for themselves in the long term.

Economic diversification creates a broader investment horizon, which in turn leads to more opportunities.

In this regard, Saudi Finance Minister Mohammed Al-Jadaan said earlier that the Kingdom continues its progress as a reliable partner for global investors, with five international financial institutions joining Saudi's Primary Dealers Program.

 "The Kingdom has strong economic and financial foundations and achieved the lowest inflation rates in the G20 during 2022," he said.

The country's ambitious reforms are ambitious and broad. They come with specific targets.  They mean spending will stay high, even amid difficult conditions for the wider global economy, but they will create a stronger and more diverse economy.