Saudi Arabia's Borrowing Expected to Rise Amid Liquidity Pressures

The government of Saudi Arabia anticipates an increase in its borrowing next year, driven by persistent financing needs and a broader context of monetary easing, as indicated by a projection from CI Capital. The analysis highlights that lower interest rates and tightening liquidity may prompt Riyadh to once again access debt markets to fulfill its fiscal and developmental obligations. In the approved budget for 2026, total government spending is set at 1.31 trillion riyals, while estimated revenues are projected at 1.15 trillion riyals, resulting in a deficit of approximately 165 billion riyals, equivalent to around $44 billion. Although this shortfall is narrower than the estimated deficit for 2025, it emphasizes the importance of both external and domestic borrowing to bridge the funding gap. The necessity for borrowing is further intensified by the Kingdom's ambitious development agenda, aligned with Saudi Vision 2030. This initiative aims to diversify the economy beyond oil by investing in various sectors, including infrastructure, industry, tourism, and services, thereby maintaining substantial capital requirements even as some spending elements are moderated. Concurrently, the financial sector is exhibiting signs of increased strain. Reports from the Saudi Arabian Monetary Authority and local banks indicate that credit growth is outpacing deposit accumulation, compelling lenders to depend more on external wholesale funding and bond issuance. This trend has rendered broader external borrowing more appealing for the government, particularly as global interest rates and domestic funding costs decline. The 2026 budget signifies a shift away from large-scale real estate megaprojects towards enhancing industrial capacity, logistics, technology, and diversified economic sectors. Nonetheless, the scale of the planned investments remains considerable, with a pipeline of projects valued at over 2.1 trillion riyals. Credit rating agencies and financial analysts have raised concerns regarding rising fiscal risks, given the volatility of oil revenues and increasing global economic uncertainty. However, the nation's debt-to-GDP ratio remains relatively low compared to many of its peers, offering some fiscal flexibility for additional borrowing.

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