Coin Press - Saudi Arabia's Economic Crisis

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Saudi Arabia's Economic Crisis

Saudi Arabia, long a symbol of oil-driven wealth, faces mounting economic challenges that threaten its financial stability this decade. The kingdom’s heavy reliance on oil revenues, coupled with ambitious spending plans and global market shifts, has created a precarious fiscal situation. Analysts warn that without significant reforms, the nation risks depleting its reserves and spiralling towards bankruptcy.

The core issue lies in Saudi Arabia’s dependence on oil, which accounts for a substantial portion of its income. Global oil prices have been volatile, recently dipping below $60 per barrel, a level far too low to sustain the kingdom’s budget. The International Monetary Fund estimates that Saudi Arabia requires oil prices above $90 per barrel to balance its national budget. With production costs among the lowest globally, the kingdom can withstand lower prices longer than many competitors, but the prolonged slump is eroding its fiscal buffers. First-quarter oil revenue this year fell 18% year-on-year, reflecting both lower prices and stagnant production levels.

Compounding this is the kingdom’s aggressive spending under Vision 2030, a transformative plan to diversify the economy. Mega-projects like NEOM, a futuristic city, and investments in tourism, technology, and entertainment require vast capital. The Public Investment Fund, tasked with driving these initiatives, plans to inject $267 billion into the local economy by 2025. While non-oil revenue grew 2% in the first quarter, it remains insufficient to offset the decline in oil income. The government’s budget deficit is projected to widen to nearly 5% of GDP this year, up from 2.5% last year, with estimates suggesting a shortfall as high as $67 billion.

Saudi Arabia’s foreign reserves, once peaking at $746 billion in 2014, have dwindled to $434.6 billion by late 2023. The Saudi Arabian Monetary Agency has shifted funds to the Public Investment Fund and financed post-pandemic recovery, further straining reserves. To bridge the gap, the kingdom has turned to borrowing, with public debt now exceeding $300 billion. Plans to issue an additional $11 billion in bonds and sukuk this year signal a growing reliance on debt markets. The debt-to-GDP ratio, while relatively low at 26%, is rising steadily, raising concerns about long-term sustainability.

Global economic conditions add further pressure. Demand for oil is softening due to a slowing global economy, particularly in major markets like China. Saudi Arabia’s strategy of flooding markets to maintain share, as seen in past price wars, risks backfiring. Unlike previous campaigns in 2014 and 2020, which successfully curbed rival production, current efforts may fail to stimulate demand, leaving the kingdom exposed to prolonged low prices. The decision to unwind OPEC+ production cuts, adding nearly a million barrels per day to global supply, has driven prices lower, undermining revenue goals.

Domestically, the kingdom faces challenges in sustaining its social contract. High government spending on wages, subsidies, and infrastructure has long underpinned public support. Over two-thirds of working Saudis are employed by the state, with salaries consuming a significant portion of the budget. Cost-cutting measures, such as subsidy reductions and new taxes, have sparked unease among citizens accustomed to generous welfare. Military spending, including involvement in regional conflicts like Yemen, continues to drain resources, with no clear resolution in sight.

Efforts to diversify the economy are underway but face hurdles. Vision 2030 aims to boost private sector contribution to 65% of GDP by 2030, yet progress is slow. Non-oil sectors like tourism and manufacturing are growing but remain nascent. Local content requirements, such as Saudi Aramco’s push for 70% local procurement by 2025, aim to stimulate domestic industry but may deter foreign investors wary of restrictive regulations. Meanwhile, the kingdom’s young population, with high expectations for jobs and opportunities, adds pressure to deliver tangible results.

Geopolitical factors also play a role. Recent trade deals, including a $142 billion defence agreement with the United States, reflect Saudi Arabia’s strategic priorities but strain finances further. Investments in artificial intelligence and other sectors are part of a broader push to position the kingdom as a global player, yet these come at a time when fiscal prudence is critical. The kingdom’s ability to navigate these commitments while addressing domestic needs will be a delicate balancing act.

Saudi Arabia is not without tools to avert crisis. Its low production costs provide a competitive edge, and its substantial reserves, though diminished, offer a buffer. The government has signalled readiness to cut costs and raise borrowing, potentially delaying or scaling back some Vision 2030 projects. Privatisation and public-private partnerships could alleviate fiscal pressure, as could a rebound in oil prices, though the latter seems unlikely in the near term. The kingdom’s bankruptcy law, overhauled in 2018, provides a framework for restructuring distressed entities, potentially mitigating corporate failures.

However, the path forward is fraught with risks. Continued low oil prices, failure to diversify revenue streams, and unchecked spending could deplete reserves within years. A devaluation of the Saudi riyal, pegged to the US dollar, looms as a possibility, which could trigger inflation and unrest. Political stability, long tied to economic prosperity, may be tested if public discontent grows. The kingdom’s leadership must act decisively to reform spending, accelerate diversification, and bolster non-oil growth to avoid a financial reckoning.

Saudi Arabia stands at a crossroads. Its vision for a diversified, modern economy is ambitious, but the realities of a volatile oil market and mounting debt threaten to derail progress. Without bold reforms, the kingdom risks sliding towards financial distress, a scenario that would reverberate across the region and beyond. The coming years will test whether Saudi Arabia can redefine its economic model or succumb to the weight of its own ambitions.

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Stargate project, Trump and the AI war...

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Europe’s arms money maze

Europe’s rearmament has acquired an uncomfortable companion: uncertainty about what the money actually buys. In Germany, an argument over defence-related borrowing has raised questions about whether exceptional debt is producing genuinely additional expenditure. In Estonia, unreliable inventory records and disputed ammunition contracts have brought ministerial accountability into the foreground. These are different problems, but they meet at the same point: a larger budget is not a reliable measure of a stronger defence.The contention that nobody knows what is happening to Europe’s weapons money goes too far. Budgets are published, procurement bodies operate and auditors are identifying failures. Nor do these cases establish that funds have disappeared into Russian hands or that the Kremlin engineered the difficulties. The more defensible conclusion is also more useful: Europe cannot judge rearmament by the volume of money announced. It must establish what has been purchased, accepted and made ready for use.That distinction matters strategically. An adversary need not steal the money to benefit from delays, unusable equipment or a loss of confidence in the governments spending it.What the €800 billion actually meansThe scale of the spending is substantial. Combined defence expenditure across the European Union reached €418 billion in 2025, with €454 billion estimated for 2026. Those annual totals should not be confused with the much larger, multi-year headline attached to the EU’s rearmament financing plan. The widely cited €800 billion is potential financing capacity, not a single fund already transferred to arms manufacturers. Its main components are approximately €650 billion in possible additional national expenditure enabled by fiscal flexibility over four years, and €150 billion in loans through the Security Action for Europe instrument, known as SAFE. The loans must be repaid; the additional national spending depends on governments choosing to use the available room.These distinctions are indispensable to any honest assessment. Permission to borrow is not an order placed with a factory. An order is not a completed delivery. Equipment delivered to a warehouse is not necessarily equipment that troops can operate, maintain and replenish. Treating all these stages as interchangeable allows governments to claim progress before the military benefit exists.It also creates a temptation to add together figures that describe different periods or overlapping flows of money. A credible account of rearmament should distinguish financing arrangements from annual expenditure, and both from verified outputs. Otherwise, the public is left comparing impressive totals whose practical meaning is unclear.Germany’s argument over additional spendingOn 10 September, the Ifo Institute challenged the use of Germany’s defence-related borrowing exemption. It calculated an €11 billion gap between additional borrowing and the year-on-year increase in the relevant expenditure. Ifo’s argument was that 38.5 per cent of the additional debt had not produced additional defence and security spending, instead freeing room for other purposes in the ordinary budget. The Finance Ministry rejected the comparison as legally and methodologically flawed. The exemption concerns qualifying expenditure above one per cent of gross domestic product, rather than an increase over the previous year. Ifo, for its part, said its analysis concerned additional spending, not constitutionality.This is not evidence that €11 billion was stolen. It is a dispute over the relationship between an exceptional borrowing mechanism and the political expectation attached to it. The difference is important: an arrangement can comply with its legal design while delivering less additional expenditure than citizens understand the announcement to promise.The practical question is whether new borrowing expands defence capacity or changes the way existing commitments are financed. Those outcomes can coexist within the same budget. Refinancing an established obligation may be lawful and fiscally useful, but it should not be presented as though an equivalent amount of new military capability has been purchased. Germany’s dispute therefore points to a straightforward transparency test. Governments should identify the expenditure that would have occurred anyway, the genuinely additional commitments and the delivery milestones attached to them. Without that comparison, the argument risks becoming a contest between accounting definitions while the central question—what the armed forces actually gain—remains unanswered.Estonia’s warning from the accountsIn Estonia, the problems are more immediate. Defence Minister Hanno Pevkur announced on 2 September that he would step down, accepting political responsibility for failures exposed in defence administration and procurement. His announcement did not amount to an admission of personal corruption.The National Audit Office issued a qualified opinion concerning defence inventories valued at approximately €1.2 billion because their quantities, composition and valuation could not be established reliably. It also questioned an unexplained retrospective adjustment of €99.7 million to the previous year’s inventory figures. That does not mean €1.2 billion of weapons has vanished. An unreliable balance is not the same thing as a proven loss. It means the records are insufficiently dependable to establish what the balance represents—a serious weakness in any organisation, and particularly consequential in one responsible for military readiness.Inadequate records can obstruct decisions long before a final financial loss is demonstrated. Commanders and purchasing authorities need to distinguish usable stock from equipment awaiting inspection, repair or replacement. If those categories are unclear, another procurement decision may rest on a mistaken understanding of what is already available.Auditing is therefore more than an exercise in retrospective blame. A trustworthy inventory helps determine what must be bought next, how urgently it is needed and whether previous purchases fulfilled their purpose. Poor accounting can undermine operational planning even where no theft is established.Paid for is not the same as usableEstonia’s ammunition procurement for Ukraine illustrates a second difficulty. The audit identified disputed advance payments and warned of a potential exposure to the state budget of around €70 million. That figure describes a risk, not a final, adjudicated loss.The controversy includes contracts involving the Italian company Datasel. Pevkur described ammunition delivered under the disputed arrangements as incomplete and of insufficient quality, rather than simply non-existent. Datasel disputes the criticism and has said that goods delivered and invoiced were worth approximately €58 million against about €59 million in advances. The company’s account is a contested position, not a judicial finding.The disagreement exposes a distinction that matters beyond this particular supplier. A payment record, an invoice, the physical presence of goods and acceptance of those goods for their intended use answer different questions. A supplier may point to shipments while a purchasing authority disputes whether the contractual requirement has been met. The existence of equipment does not, by itself, resolve an argument over quality or completeness.For Ukraine, the decisive consideration is usable military support. For the public authorities financing it, the additional questions are whether payment conditions were appropriate, inspections were timely and contractual protections can recover money when performance is disputed. Those questions should be settled through evidence and the relevant proceedings, not through premature declarations of guilt.The procurement lesson is nonetheless clear. Emergency purchasing needs traceable contracts, independently verified acceptance and a dependable record linking each payment to performance. Urgency may justify faster decisions. It cannot make the distinction between an invoice and a functioning delivery disappear.An oversight system split across institutionsEurope’s defence financing does not sit within a single system of scrutiny. National budgets, EU programmes, loans and off-budget arrangements have different institutional responsibilities. The European Court of Auditors’ September review described complex governance and uneven oversight arrangements, rather than a continent-wide absence of auditing.SAFE falls within the European Court of Auditors’ remit. The European Peace Facility, outside the ordinary EU budget, has its own College of Auditors. National defence expenditure is scrutinised through national institutions. The distinction is between different mandates, not between money that is automatically checked and money that is automatically unaccountable. The difficulty arises at the joins. A public explanation may follow the announcement of a financing package, while a procurement body follows the contract and an operational authority follows the equipment. Unless those accounts can be reconciled, citizens and legislators may struggle to establish the complete journey from political promise to accepted delivery.Secrecy complicates that task, but it need not prevent it. Publishing ammunition locations or technical vulnerabilities would be irresponsible. Giving properly authorised auditors access to contracts, inspections and payment records is a different matter. The need to protect operational information should not become a general excuse for withholding financial evidence.Nor should procurement integrity be treated as a rival to speed. Clearly assigned responsibility, verifiable milestones and early checks can prevent disputes from developing into expensive attempts to recover money after the event. The relevant choice is between controls that work during procurement and explanations demanded after something has gone wrong.Where Putin could benefitThese failures do not establish that Vladimir Putin has obtained everything he wanted. A Europe that turns rising expenditure into effective forces would represent a very different outcome. There is also no demonstrated Russian role in the particular German budget dispute or the Estonian accounting and contractual problems described here.The potential advantage for Moscow is indirect. Delayed or disputed deliveries can leave the intended recipient weaker than the expenditure suggests. Confusing financial claims can make it harder to defend further commitments. A succession of procurement controversies could erode confidence not only in individual contracts, but in the wider case for supporting Ukraine and strengthening European defence.That is a strategic risk, not proof of an accomplished Russian victory. The public identification of problems is itself evidence that scrutiny exists. A minister accepting political responsibility, auditors challenging unreliable balances and a government being pressed to explain its borrowing are mechanisms through which democratic systems can correct failure. Their value depends on what happens afterwards.The answer is neither to abandon rearmament nor to shield it from criticism. Governments should report progress in terms that connect money to results: contracts awarded, payments made, equipment accepted and capabilities available, with sensitive details reserved for secure oversight. Disputed transactions should remain visible until resolved rather than disappearing beneath the next spending announcement.Europe does not need to prove its determination by producing another larger number. It needs to demonstrate that the money already committed is becoming usable strength. Until it does, the distance between those two things remains an opportunity for the adversary it is trying to deter.