EMEA Economic Comment: Saudi Arabia: Fiscal deficit narrowed in Q2 as oil revenue rebounded

Research evidence excerpt

EMEA Economic Comment: Saudi Arabia: Fiscal deficit narrowed in Q2 as oil revenue rebounded

Global Research

31 July 2026ab

EMEA Economic Comment Economics

Saudi ArabiaSaudi Arabia: Fiscal deficit narrowed in Q2 as oil

revenue rebounded Anna Zadornova

Economist

anna.zadornova@ubs.com

+44-20-7567 4212

State budget deficit shrinks in Q2 but budget plan is still likely to be overshot

The Ministry of Finance reported that the state budget deficit shrank to SAR34.3bn

($9.1bn) in Q2'26, down 1% from Q1'26 and down 73% from Q1 deficit. Still, at

SAR 160bn for H1 2026 the fiscal gap came very close to FY 2026 budget plan of

SAR165.4bn, so we expect the plan to be overshot by a substantial amount this year

even with a likely more supportive revenue backdrop in H2 due to elevated oil prices. We

calculate that 12m MA deficit likely remained at c.7% of GDP in Q2, similar to Q1 and

up from 5.8% of GDP in 2025. The next key fiscal event is the 2027 pre-budget

statement usually published in early October, which will have updated government fiscal

plans for 2026 and the first outline of targets for 2027-29.

Oil revenues improved as higher prices offset volume loss

The main driver for a wider fiscal gap in Q1 was a 20%y/y jump in expenditure, although

from a relatively low base in Q1 2025. The pace of expenditure growth in Q2 slowed

down to 11%, with spending on purchases of goods and services up 1%y/y - which

supports the view that there was a one-off jump in procurement in Q1. Also

encouragingly, growth in the employee compensation (the largest spending item) stayed

at 3%y/y, similar to Q1. Capex spending slowed to 16%y/y from 56%y/y jump in Q1.

Spending on subsidies, grants and social benefits continued to grow at an elevated pace

of 20%y/y, down from 33%y/y in Q1.