Government in the Saudi Financial Market: Role, Indicators, and Developments

The Saudi government is an institutional entity that includes the executive and regulatory authorities overseeing the financial and economic strategy of the country. Through the Council of Ministers, the Ministry of Finance, the Capital Market Authority, and the Public Investment Fund, the government aims to achieve economic stability and protect the national economy. This is reflected in budget formulation, financial market regulation, issuing laws and regulations, and overseeing major companies partially owned by the state (such as Aramco and SABIC). The government's role is not limited to regulation; it extends to massive investment initiatives that support sustainable development and guide the economy towards achieving the targets of Vision 2030. The concept of government is characterized by high flexibility in dealing with economic changes, as it formulates and adjusts financial policies as needed and responds to global challenges to ensure sustainable economic growth and enhance the Kingdom's role as a regional financial hub.

The government plays a pivotal role in regulating the financial market through the Capital Market Authority and the Saudi Central Bank. These bodies establish the regulations governing market operations, monitor trading activities, and protect investors from unfair or fraudulent practices. They also impose disclosure and transparency standards on listed companies and monitor compliance with international accounting standards. In recent years, the Saudi market has witnessed significant developments in the legislative framework with the adoption of IFRS standards and the expansion of qualified foreign investors. All of this contributes to increasing transparency and trust, making the Saudi financial market more attractive to both local and foreign capital. The government continues to update legislation to keep pace with global standards, enhancing market competitiveness and supporting a diverse range of investment opportunities.

The Saudi public budget reflects the government's financial trends and strategic priorities. In 2024, government revenues reached approximately 1.7 trillion SAR, while expenditures stabilized between 1.3 and 1.4 trillion SAR, resulting in a financial surplus exceeding 300 billion SAR (about 15% of GDP). The 2024-2025 budget focuses on supporting major developmental projects, with the government anticipating a slight deficit not exceeding 1-2% of GDP due to a potential decline in oil prices and increased reliance on non-oil revenues. Official indicators show that the government has successfully controlled spending and enhanced financial sustainability, benefiting from previous surpluses and continuing economic diversification policies. The state budget is monitored closely each year and is subject to review based on developments in global markets and geopolitical changes that may affect revenue flows.

Saudi Arabia's GDP reached approximately 1.2 trillion USD in 2023, with an economic growth rate of around 7% driven by rising oil revenues and activity in the non-oil sector. On the other hand, the government has maintained the public debt-to-GDP ratio at acceptable levels, not exceeding 35% at the end of 2023, and is estimated to be between 32% and 34% in 2024. The government follows a disciplined financial policy relying on issuing short- and long-term bonds and increasing funding reserves, ensuring that public debt remains within safe limits. These indicators reflect the government's commitment to sustainability and its ability to adapt to global fluctuations by diversifying funding sources and revenue streams, in addition to enhancing confidence among global credit rating agencies.

The Public Investment Fund (PIF) is the main investment arm of the Saudi government, with assets exceeding 1.5 trillion USD. The fund plays a dual role: financing major national projects (such as NEOM and the Red Sea projects) and diversifying investments globally in sectors such as technology, renewable energy, and culture. The fund helps alleviate pressures on the public budget by transferring profits from its investments to the state treasury, while also supporting local companies and strategic projects. In recent years, the fund has garnered increasing international attention due to its involvement in major deals and the launch of sovereign sustainability bonds, enhancing the Kingdom's position on the global investment map. The fund's performance reflects the government's success in implementing Vision 2030 and diversifying the economy away from oil dependency.

Non-oil revenues in the Kingdom have seen significant growth, rising to account for approximately 30% of total government revenues in 2023, an increase of over 10% from the previous year. The government aims to raise this percentage to 50% by the middle of this decade through the implementation of a value-added tax (15%, rising to 20% in 2025), expanding government fees, and activating taxes on capital gains. This policy represents a strategic shift aimed at reducing reliance on oil and providing sustainable income sources. These initiatives have contributed to enhancing state revenues and diversifying the economy, supporting the government's ability to finance major developmental projects and achieve greater financial stability despite global oil price fluctuations.

The Saudi government increasingly relies on issuing bonds and sukuk to provide the necessary financing for strategic projects and cover budget deficits when needed. In 2024, the government issued long-term local bonds worth nearly 50 billion SAR and sovereign sustainability sukuk worth 2 billion USD, reflecting its commitment to green investment standards and sustainable financing. These issuances target local and international investors, with sukuk offering the advantage of compliance with Islamic law. These tools provide the government with high financial flexibility and help enhance state reserves without affecting the level of public debt, especially with the Kingdom's strong credit rating continuing.

The Saudi government continued to implement structural reforms during 2024-2025 to enhance transparency and governance in the financial market. Among the most important of these reforms is requiring listed companies to fully apply international financial reporting standards (IFRS) starting in 2025, and updating financial disclosure legislation for government and quasi-government companies. The scope of qualified foreign investors (QFIs) has also been expanded to encourage foreign capital flows. The government is also focused on enhancing coordination with the private sector and increasing local companies' participation in national projects. These reforms aim to enhance the credibility of the Saudi market, attract more investments, and improve investor rights protection, which supports market stability and enhances the competitiveness of the national economy.

The Saudi government seeks to develop new economic sectors as part of Vision 2030, such as tourism, entertainment, technology, and renewable energy. The government has launched massive projects like NEOM and the Red Sea projects, investing significant amounts in infrastructure and promising sectors. Through tax incentives, land facilitation, and financial support programs, the government encourages both local and international companies to invest in these sectors. This approach aims to diversify the national economy, create new job opportunities, and increase the contribution of non-oil sectors to GDP. The government also aims to enhance public-private partnerships and stimulate innovation and entrepreneurship to support sustainable growth.

The Saudi government faces multiple challenges due to global economic changes, such as oil price fluctuations, geopolitical crises, and changes in global monetary policy. The government responds to these challenges by controlling public spending, allocating financial reserves to face crises, and diversifying income sources. The government closely monitors the decisions of international financial institutions (such as the Federal Reserve) and adjusts its monetary policies accordingly to maintain the stability of the Saudi riyal and the cost of public debt. The Kingdom invests in sustainable and environmentally friendly projects, enhancing its ability to face future risks and maintaining a strong credit rating with global rating agencies. Balancing financial stability and achieving growth remains one of the government's top priorities in this context.

Vision 2030 is the most important strategic framework for transforming the Saudi economy from oil dependency to diversifying income sources. The government plays a central role in implementing this vision through launching mega projects, stimulating new sectors, and supporting innovation. Government initiatives include privatizing certain sectors, encouraging foreign investments, and supporting small and medium enterprises. The government also works to enhance transparency, develop infrastructure, and update the legislative framework to make the Saudi market more attractive to investors. The vision aims to increase the private sector's contribution to GDP, create job opportunities for citizens, and achieve long-term sustainable development.

The Saudi government is one of the most influential in the region, especially in financial and investment policies. The Kingdom competes with other Gulf Cooperation Council governments (such as the UAE and Qatar) in attracting investments and implementing mega projects. Each government relies on major national companies in energy and infrastructure sectors and seeks to diversify the economy through similar initiatives and strategies. The Kingdom stands out in its ability to implement massive projects like NEOM, the diversity of its sovereign funds, and the size of budgets allocated for development. However, all Gulf governments are affected by geopolitical changes and oil price fluctuations, prompting them to continuously develop their financial policies to ensure sustainable economic growth.

The Saudi government places great importance on enhancing transparency and governance in both the public and private sectors. It has launched initiatives to update financial disclosure legislation, develop monitoring and reporting mechanisms, and improve the efficiency of government agencies. Through these initiatives, the government aims to increase the confidence of local and international investors, ensure the protection of shareholder rights, and address any practices that may negatively impact the investment environment. The government also focuses on improving communication with the private sector and encouraging companies to adopt best practices in governance and financial management. This is reflected in the evolving level of transparency in the Saudi financial market, enhancing its attractiveness as a regional and global financial hub.