Growth in oil and non-oil revenues narrows the second-quarter deficit to SAR 34.3 billion, while first-half figures reveal continued spending pressure to finance the transformation and confront regional disruptions

Monitoring and Analysis | Strategic Media Department – BETH
Supervised by Abdullah Al-Omairah

Riyadh | BETH

Saudi Arabia’s budget recorded revenues of SAR 338.7 billion in the second quarter of 2026, against expenditures of SAR 373 billion. The deficit narrowed to SAR 34.3 billion, down 0.7% from the corresponding quarter of last year.

The budget performance report showed a clear improvement from the first quarter, driven by higher oil and non-oil revenues alongside a 3.6% quarterly decline in spending.

During the first half of the year, revenues totaled SAR 599.6 billion, while expenditures reached SAR 759.8 billion, resulting in a cumulative deficit of SAR 160 billion.

These results come amid exceptional regional conditions that have disrupted oil flows, trade, and navigation through the Strait of Hormuz. Higher oil prices and the use of the East–West Pipeline to transport crude to Red Sea ports helped limit the impact of lower shipment volumes and preserve a significant share of revenues.

Revenues Regain Strength

Oil revenues rose by 28% in the second quarter compared with the first, reaching SAR 185 billion. They also increased by 22% year on year.

Total oil revenues amounted to approximately SAR 330 billion in the first half, up 9% from the corresponding period of last year.

The increase shows that the effect of lower export volumes was not fully transmitted to public finances. Higher oil prices offset part of the decline in shipments, while redirecting a share of exports to the Red Sea port of Yanbu helped maintain the flow of crude to global markets.

Non-oil revenues, meanwhile, increased by 32% from the first quarter to SAR 154 billion, recording annual growth of 3%.

During the first half, non-oil revenues reached approximately SAR 270 billion, an increase of 2% year on year.

Non-oil sources therefore accounted for nearly 45% of total second-quarter revenues, reflecting the broadening of the government’s revenue base, even as oil remains the factor with the most immediate influence on budget movements.

Significant Quarterly Improvement

The importance of the second-quarter results becomes clearer when compared not only with last year, but also with the first quarter of 2026.

The budget recorded a deficit of approximately SAR 125.7 billion in the first quarter before it narrowed to SAR 34.3 billion in the second, representing a quarterly decline of nearly 73%.

The improvement came through two simultaneous developments:

Higher oil and non-oil revenues, and a decline in expenditures from approximately SAR 386.8 billion in the first quarter to SAR 373 billion in the second.

This indicates that the budget has begun absorbing part of the shock experienced at the start of the year, although its effects have not been fully overcome.

The First-Half Deficit

Despite the substantial second-quarter improvement, the cumulative first-half deficit remains the figure requiring the closest examination.

At SAR 160 billion, the deficit is approaching the entire amount projected in the 2026 budget, estimated at approximately SAR 165 billion.

Spending during the first six months reached around 58% of total expenditure budgeted for the year, while approximately 52% of projected annual revenues were collected.

This does not necessarily mean that the full-year deficit will exceed projections by the same margin. Second-quarter performance was significantly stronger than in the first quarter, while oil revenues could improve further if prices remain elevated and a greater share of export activity is restored.

The figures do, however, mean that the second half of the year will be decisive in determining the budget’s final trajectory.

The outcome will depend on the ability of revenues to maintain their growth, the scale of additional spending associated with security developments, the stability of oil exports, and the speed at which normal traffic returns to maritime corridors.

Is the Deficit a Concern?

A fiscal deficit is not, in itself, evidence of a crisis, particularly when it forms part of a declared spending policy and the country possesses reserves, borrowing capacity, and access to sustainable financing.

The state’s general reserve balance stood at approximately SAR 399 billion at the end of the first half. This is separate from the foreign-exchange reserves managed by the Saudi Central Bank and should not be confused with them.

The availability of reserves, however, does not eliminate the need to monitor the deficit.

The more important question is not whether a deficit exists, but:

What is the deficit financing, and what return will that spending leave within the economy?

If expenditure is directed toward productive infrastructure, income diversification, the development of new sectors, stronger defense capabilities, and economic protection, it represents an investment capable of expanding future revenues.

If spending rises without generating an economic return or improving productivity, a sustained deficit will place pressure on public finances regardless of the size of existing reserves.

Spending Under Scrutiny

Military expenditure reached approximately SAR 125 billion during the first half, equivalent to 52% of the sector’s allocation for the year.

This percentage alone does not indicate an overrun, as it broadly corresponds with the passage of half the fiscal year. It nevertheless carries additional significance amid widening regional tensions and attacks targeting energy facilities and maritime corridors.

Security developments could require additional spending during the second half, whether to protect infrastructure, strengthen military capabilities, or secure energy export routes.

At the same time, the 3.6% decline in total second-quarter spending points to an effort to moderate the pace following the substantial increase recorded in the first quarter, without halting major projects and programs.

A Pipeline Protecting the Budget

The crisis has highlighted the value of the East–West Pipeline as a strategic asset whose importance extends beyond the energy sector.

The pipeline, which transports oil from the Eastern Province to the Red Sea port of Yanbu, provided an alternative route when shipping through the Strait of Hormuz was disrupted.

Energy infrastructure thus became a tool for protecting revenues, the budget, and the broader economy, rather than merely a means of transporting oil.

This is an important dimension in interpreting the figures:

Part of the Kingdom’s ability to absorb the shock came not only from higher oil prices, but also from earlier investments that created geographical and logistical alternatives before they were needed.

Redirecting exports to the Red Sea does not eliminate the risks. It shifts part of them to another route passing through Bab al-Mandab, which is itself facing growing threats.

This gives the Saudi initiative to establish a multinational maritime defense coalition a direct economic dimension. Protecting maritime corridors also means protecting exports, revenues, the budget, and supply chains.

An Economy Demonstrating Resilience

The International Monetary Fund said that the Saudi economy entered 2026 with strong momentum after gross domestic product expanded by 4.6% in 2025, supported by robust domestic demand and non-oil activity.

Inflation remained below 2%, while labor-market conditions continued to improve, with unemployment among Saudi nationals declining and Saudi women’s labor-force participation rising to 35%.

The IMF also highlighted the strength of Saudi foreign-exchange reserves and the resilience of the banking sector, noting that Saudi banks maintain strong capital and liquidity buffers that support their ability to withstand disruptions.

However, the Fund does not expect the Saudi economy to pass through 2026 without being affected. It forecasts growth to slow to 1.7% because of disruptions to trade, oil exports, and maritime traffic, before accelerating to 5.5% in 2027 as oil and non-oil activity recover and shipping gradually returns to normal.

The strong 2027 growth forecast is therefore closely connected to developments in the war. It assumes an easing of regional disruptions and a substantial restoration of activity through maritime corridors.

Artificial Intelligence and Growth

The IMF estimates that wider adoption of artificial intelligence could add as much as approximately 6% cumulatively to the level of Saudi GDP over the coming decade under an optimistic scenario.

This does not mean that artificial intelligence alone will raise the annual growth rate to 6%. Rather, it could generate a cumulative increase in the size of the economy by boosting productivity and improving efficiency across government, healthcare, education, financial services, and energy.

The Kingdom ranks highly across several indicators of AI adoption. Translating this progress into economic growth, however, will require expanding the use of technology within businesses, developing workforce skills, and connecting technology investment with production, services, and employment opportunities.

The Private Sector Advances

The IMF welcomed the Public Investment Fund’s 2026–2030 strategy, which moves toward more selective capital allocation and greater private-sector participation in financing projects and leading economic growth.

This point is directly connected to the budget.

As the private sector’s role expands, economic activity becomes less dependent on direct government spending, allowing projects to continue without placing their entire cost on public finances.

The success of the transformation will therefore not be measured solely by how much the government spends, but by its ability to convert that spending into an investment cycle led by the private sector and capable of generating revenues, employment, and sustainable activity.

What Do the Figures Reveal?

The first-half results reveal three simultaneous realities.

First, Saudi public finances came under exceptional pressure at the beginning of the year, reflected in higher spending and a wider deficit.

Second, the second quarter recorded a strong improvement, with revenues increasing, expenditures declining, and the quarterly deficit narrowing by approximately 73%.

Third, this improvement does not remove the need for fiscal discipline, as the cumulative deficit consumed most of the amount projected for the entire year within the first six months.

The figures therefore do not point to a fiscal crisis, but neither do they allow the deficit to be treated as an incidental number.

They reveal an economy possessing the tools to absorb shocks while simultaneously paying a considerable price to protect its security, sustain its transformation, and finance its projects in a turbulent regional environment.

The Second Half

Performance during the second half will depend on four principal factors:

Oil prices remaining at levels sufficient to offset lower volumes; the ability of the East–West Pipeline and Red Sea ports to maintain export flows; controlling expenditure without slowing priority projects; and preventing a further expansion of the conflict that would impose additional security and economic costs.

If the improvement recorded during the second quarter continues, the budget may be able to contain a significant part of the deviation registered at the beginning of the year.

If disruptions in the Strait of Hormuz persist, threats extend further into the Red Sea, and defense expenditure rises, the full-year deficit may exceed its projected level.

This would not mean that the Kingdom had lost its financing capacity, but it would increase the importance of prioritizing expenditure and improving spending efficiency.

Conclusion

The budget does not tell only the story of a deficit.

It tells the story of a country continuing to finance its transformation, protect its infrastructure and export routes, and confront a regional war that has affected oil, trade, and confidence, while maintaining growth in non-oil revenues, strong reserves, and a stable banking sector.

The current deficit is financeable, but it requires careful management.

Spending can drive growth, but it must generate a clear return.

The real test will not be how much the Kingdom spent during the crisis, but what remains after that spending:

Productive assets that expand the economy, or a temporary bill that ends with the fiscal year?