Saudi Economic Contraction: How MBS Debt-Led Growth Is Creating a Strategic Financial and Geopolitical Trap for Saudi

MBS is borrowing 150 billion dollars a year to sustain 2% growth. In doing so, he has handed Washington the financial leverage to press for normalisation.

The International Monetary Fund concluded its 2026 Article IV mission to Riyadh this week with a verdict dressed in the careful language of approval. The Saudi economy, it said, is proving resilient in the face of the war, supported by strong fundamentals and diversified infrastructure. Growth this year will come in notably lower but holding up at around 2%, down from 4.5% in 2025, contingent on shipping through the Strait of Hormuz normalising in the coming months. Inflation is projected to rise to 2.3%. Higher oil prices, the Fund noted, would offset volume losses and ease the fiscal and current account deficits. It was a statement designed to reassure, and the markets read it that way.

The word resilience is doing an extraordinary amount of work here. Strip it away and look at the arithmetic, and a very different economy comes into view. A 2% expansion of a roughly 1.3 trillion dollar economy is about 26 billion dollars of additional output. In the same year, the Saudi state alone plans to borrow 58 billion dollars. That figure covers a 44 billion dollar budget deficit and 14 billion dollars in maturing principal. The sovereign is borrowing more than twice the entire increment of growth the IMF is celebrating. And the sovereign is only the first and smallest layer of the structure.

An Economy Running on Borrowed Money

The borrowing is everywhere, and it is simultaneous. In January the debt management centre raised 11.5 billion dollars in a single international bond sale that drew a 31 billion dollar order book. Days later it closed a 13 billion dollar syndicated loan earmarked for power, water and utilities. Then came the monthly domestic sukuk, 2.1 billion dollars in February, 4.11 billion in March, 4.52 billion in April, until by late May the state had quietly secured around 90% of its annual funding before the year was half over. The kingdom's total debt capital market, already past 520 billion dollars at the end of 2025, is on track to reach 600 billion dollars by the close of 2026.

The sovereign wealth fund borrows on its own account and outside the budget. It raised 2 billion dollars in January and a further 7 billion in May, the latter against a 23.8 billion dollar order book. Its total debt has quadrupled since 2020. Crucially, none of this appears in the 44 billion dollar deficit figure, because the fund's spending sits off the fiscal balance sheet entirely. It is leverage by the state that the state does not formally count.