Saudi Arabia isn't letting a $65 billion hole in its budget stop the Kingdom from playing a leading role in the largest-ever leveraged buyout to take Electronic Arts private. The shortfall is now estimated at 5.3% of GDP.

Riyadh

Saudi Arabia has recently increased its budget deficit forecast, reflecting lower-than-expected revenues, particularly from oil. Despite this, the Public Investment Fund (PIF) continues to make significant investments, such as its involvement in a major leveraged buyout, as part of the country's broader economic diversification strategy.

Authorities have stated that the budget deficit is expected to persist for the next few years but should gradually decline. Saudi Arabia has been transparent about its borrowing plans, with a low public debt level relative to its GDP, and continues to have strong access to capital markets. The government's spending, particularly through the PIF, is aimed at stimulating growth in the non-oil economy and transforming the country's economic and social landscape. Recent OPEC+ decisions also suggest a shift towards increasing oil market share, which is expected to support revenues and growth.

Bell: Saudi Arabia transparent about borrowing plans

Last week I would say there were two major developments that came through from Saudi Arabia. The E.A. sports a largest leverage buyout in history with the biggest chunk of funding equity financing coming from P.I.F. the same week that Saudi Arabia also revising upwards their budget deficit for the year. So how do you square the two up together. How is it that the P.I.F. are still committing this amount of financing to external investments in a year where clearly there's a lot of pressure on the domestic budget. Well I think if we take the budget for to start off with I mean when we looked at what was being planned for 2025 when it got announced around this time last year we thought that the projections were a little bit too shallow a little bit too conservative in terms of the fiscal deficit that was being planned. So our forecast originally was around 5 percent of GDP deficit. So the government now coming in and saying that's more or less where they're seeing the numbers this year I think is a reflection that the revenue situation has not been as strong related to the oil story. But on the other side you know this commitment to expenditure this commitment to G.R.E. spent spending from an investment like the one from P.I.F. into E.I.A. is just more of a commitment to the diversification strategy. So these are investments that are going to be generating returns for Saudi government whether that's directly through PIF or directly to the government balance sheet itself. And I think they fit into a longer strategy of the transformation and diversification of the Saudi economy. How do you see the evolution of the Saudi budget deficits in coming years and what are the options that authorities have. Do you see them massively tightening in and reining in spending or are they going to have to somehow raise revenues. So we think it's going to be in deficit for a couple of years but probably on a declining path from what we expect for 25 and 26 where it'll be probably around 5 percent this year maybe closer to 4 percent for 2026. And I think we're probably using a lower oil price assumption in our forecast than maybe the Saudi government is doing going forward in terms of how they're going to be financing. Look Saudi Arabia has been very transparent about saying hey we're going to have a borrowing plan. We're going to issue that at the end of this year. We're going to tell investors what kind of capital that we're going to be needing and that they've been very transparent about. We're going to go out to markets usually pretty early. They're usually when the first come out of that sort of January times with big issuances and they remain mean to have very strong access to capital markets as well. So we don't see a lot of pressure on that side for them to be able to raise money through borrowing. Also the debt position of Saudi Arabia to start with is very low for a trillion dollar plus economy. You know you're talking low 30 percent of GDP in terms of total public debt. So there is ample room for them to continue to be able to borrow. Yeah. At what point do you think these wider budget deficits are going to have a knock on effect on investors willingness and appetite to fund Saudi Arabia at these levels. I.E. is there going to have to be a risk repricing to account for the wider deficits. Well I think already you're seeing that in terms of the kind of spreads that Saudi gets relative to some of the peers across the region. So they're a little bit wider. They're not particularly extravagantly wide but compared with some of the other markets in the GCC they're a little bit wider as you'd expect. Still the the ratings for Saudi Arabia are very strong. You know good investment grade credit that's available a regular borrower a diversification and transformation story that is pretty strong. And I think investors continue to buy into it. We're not really worried about the deficit really widening substantially from what we expect around the sort of 5 percent for 2025. But if you saw that really materially deviate if there was sort of a a runaway spending which very evidently there is not. If you look at the pre budget plan yes there is an increase in spending next year. But thereafter they're relatively moderate increases and a budget shortfall that in the government's projections comes closer to about 2 percent of GDP. So not really worrisome numbers I think as far as the investor base is concerned. Let me ask you a growth question. The IMF are expecting the PIF to spend about 40 billion dollars a year at home. Is that growth stimulative. Well look I think the strategies from the PIF are multiple. One of them is certainly to invest in assets that are going to help the growth story for Saudi Arabia. And we have seen really robust activity in the non-oil economy. The PMIs that we have for September for instance were really strong. I think the other angle for PIF is to invest into a transformed Saudi sociocultural experience. So it's not just about generating economic returns. It's about what is Saudi Arabia going to look like in 2030 and beyond in terms of opportunity in terms of living quality. And finally let me just ask you OPEC plus that is you know we had the decision this weekend but steadily it's been Saudi Arabia that have been bearing the brunt or taking upon themselves to bring those extra barrels back to the market. Is that a boon for the Saudi Arabian economy because they're finally able to produce more in terms of revenues. Well I think it's a definite shift in the strategy to say well we're not going to go down a price targeting route anymore. We are going to go for a value or a volume versus value kind of approach. So they'll be able to capture more and more of a oil market share in the balance when there is some restraints on other producers who maybe would want to get access to it. So we do think it is positive in terms of the revenue that's going to be generated even if it's at lower prices but also contributing to growth in a serious way.

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