RIYADH: Saudi Arabia’s structural shift toward non-oil revenue is strengthening its economic resilience, even as the Kingdom’s widening fiscal deficit and ambitious digital expansion create fresh funding needs, a new analysis showed. 

The government posted a SR160 billion ($42.7 billion) fiscal deficit in the first half of 2026, 71 percent higher than the SR93 billion deficit a year earlier, largely because of increased capital spending, S&P Global Ratings said. 

S&P forecasts the deficit will widen to 5.8 percent of gross domestic product in 2026, before narrowing to an average of 3.4 percent over 2027-29. It said authorities are recalibrating the pace of Vision 2030 projects, which should help contain deficits and the accumulation of government debt through 2029. 

The shift is already visible in economic activity. Non-oil activities grew 0.9 percent year on year in the second quarter, according to revised data from the General Authority for Statistics, while real GDP contracted 4.7 percent, largely because oil activity fell 24.8 percent. 

S&P Global Ratings credit analyst Hina Shoeb said: “Despite fiscal and geopolitical challenges, Saudi Arabia is advancing its goals to become a multimodal economy through rising non-oil revenue and rapid digital expansion.”  

She added: “But the financing needs of this transition are high, and the banking sector alone will not be able to meet them.” 

In its report published on Oct. 6, S&P said the structural shift in Saudi Arabia’s revenue base toward non-oil sources “supports long-term resilience, though there are short-term challenges.” 

Economist Talat Hafiz told Arab News: “What gives the non-oil economy its resilience is the increasing diversity and depth of its growth drivers. It is no longer dependent on public spending alone.”  

He added that S&P’s assessment of the Kingdom’s strong net government asset position also reinforces this resilience. 

War and reserves 

S&P’s base case assumes disruption from the war in the Middle East will continue into 2027, keeping regional oil exports below prewar levels.  

Saudi Arabia nevertheless retains a substantial external asset base. Foreign-exchange reserves stood at $494 billion, or 48.7 percent of GDP, in June 2026, up from about $437 billion, or 45.6 percent of GDP, at the end of 2024. 

Digital economy 

The rapid expansion of the digital economy is becoming a key pillar of the diversification strategy, with data centers emerging as a major source of infrastructure investment.  

S&P said Saudi Arabia had about 222 megawatts of operational data-center IT power in the first quarter of 2025, with 451 Research projecting compound annual growth of about 29 percent through 2030. 

Consultancy Alvarez & Marsal estimates that Saudi Arabia could reach 1 gigawatt of installed data-center capacity by 2030, requiring $7 billion-$9 billion of project capital, including $3.5 billion-$7 billion of debt. An aggressive scenario of 2.5GW-3GW would require $28 billion-$42 billion of capital.  

S&P stressed that these are possible outcomes rather than committed expenditure. 

Recent deals illustrate the financing models emerging around the sector. DataVolt agreed to invest an initial $5 billion in the first phase of a 1.5GW AI campus at Oxagon, with the first phase scheduled for 2028.  

In January, Humain and the National Infrastructure Fund, or Infra, agreed a nonbinding financing framework of up to $1.2 billion covering up to 250MW of hyperscale AI data-center capacity.  

Banks seek new funding 

Saudi banks are also looking beyond deposits as lending expands. Public-sector deposits accounted for 33 percent of total system deposits in June 2026, up from nearly 20 percent at the end of 2018. S&P still expects “the loan-to-deposit ratio to continue rising from 104 percent at the end of June 2026, necessitating the mobilization of external funding.” 

Banks are exploring structured finance. Securitisation, including residential mortgage-backed sukuk, is emerging as an alternative as mortgage lending tops $200 billion, though second-quarter property transaction values fell 49 percent.