Of all thirteen Vision Realization Programs, the Fiscal Balance Program (FBP) may be the least glamorous but the most consequential for Vision 2030’s long-term viability. Without sustainable government finances, every other VRP — from NIDLP’s industrial ambitions to HCDP’s education reforms — becomes fiscally precarious. The FBP is, in essence, the program that pays for all the other programs.
Launched in its initial form in 2017, the Fiscal Balance Program was originally tasked with a specific and urgent goal: eliminating the budget deficit that had ballooned to over 15 percent of GDP in 2015 following the oil price crash. That crisis — which saw Saudi Arabia burn through over $100 billion in foreign reserves in a single year — served as a visceral reminder that an economy dependent on a single commodity for 87 percent of government revenues was existentially vulnerable to price shocks.
The FBP’s mandate has since evolved from short-term deficit closure into something far more ambitious: the systematic construction of a diversified, sustainable revenue architecture that can fund government operations, social services, and Vision 2030 investments regardless of oil market conditions. This transformation — from a petrostate fiscal model to something resembling a modern, diversified tax-and-spend framework — represents perhaps the most profound structural change in the Kingdom’s modern history.
Revenue Diversification: The VAT Revolution
The single most impactful fiscal reform implemented under the FBP umbrella was the introduction of Value Added Tax (VAT). Saudi Arabia implemented a 5 percent VAT in January 2018, following a GCC-wide agreement. In July 2020, responding to the dual shock of COVID-19 and the oil price war, the Kingdom tripled the rate to 15 percent — a move that demonstrated both the government’s willingness to make politically difficult decisions and the FBP’s role as a crisis management tool.
The impact has been transformational. VAT revenues have grown from approximately SAR 47 billion ($12.5 billion) in 2019 to over SAR 150 billion ($40 billion) annually, making it the single largest non-oil revenue source for the Saudi government. To contextualize this figure: VAT alone now generates more revenue than total non-oil government income did as recently as 2015.
The VAT implementation has also yielded secondary benefits that extend beyond pure revenue collection. The requirement for businesses to register, maintain records, file returns, and undergo audits has driven formalization of the Saudi economy, bringing previously informal economic activity into the documented, taxable sphere. The Zakat, Tax and Customs Authority (ZATCA) — the FBP’s primary implementation body for tax administration — has invested heavily in digital tax infrastructure, including electronic invoicing mandates that have improved compliance rates and reduced the shadow economy.
Excise Taxes and Fee Reforms
Beyond VAT, the FBP has expanded the non-oil revenue base through targeted excise taxes and fee restructuring. Excise duties of 50 to 100 percent on tobacco, energy drinks, and sugary beverages generate approximately SAR 12 billion annually while simultaneously advancing public health objectives — a rare example of fiscal policy that aligns revenue goals with social goals.
Government fee reform has rationalized the pricing of public services that were historically provided free or below cost. Visa fees, municipal service charges, industrial licensing fees, and commercial registration costs have been adjusted to better reflect the cost of provision. The expatriate dependent levy — a monthly fee charged to foreign workers for each dependent family member residing in the Kingdom — generates substantial revenue while also serving as a labor market policy tool that encourages companies to hire Saudi nationals.
Expenditure Efficiency: Doing More with Less
Revenue diversification represents only half of the FBP’s mandate. The other half — equally important but politically more sensitive — is expenditure reform. Saudi Arabia’s government spending has historically been characterized by generous subsidies, expansive public sector payrolls, and project cost overruns that reflected the abundance mindset of a petro-economy.
Subsidy Reform
Energy subsidy reform has been the most economically significant expenditure-side intervention. Saudi Arabia historically subsidized domestic fuel, electricity, and water prices to levels that were among the lowest in the world. Gasoline retailed for less than bottled water; electricity prices bore no relationship to generation costs; and water — in a country that depends almost entirely on desalination — was essentially free for residential consumers.
The FBP has implemented a phased subsidy reduction program that has raised domestic energy prices substantially over several years. Gasoline prices have approximately tripled from their pre-reform levels. Electricity tariffs have been restructured to introduce tiered pricing that penalizes excessive consumption. Water tariffs have been adjusted to reflect scarcity, though residential prices remain well below the full cost of desalination and distribution.
These reforms serve a dual purpose. They reduce the fiscal burden of subsidies — which at their peak consumed over $60 billion annually — while simultaneously improving energy efficiency and reducing the distortive economic incentives that encouraged wasteful consumption. The International Monetary Fund has repeatedly commended Saudi Arabia’s subsidy reform program as one of the most comprehensive and well-executed in the Middle East.
Public Sector Wage Discipline
The Saudi government is the Kingdom’s largest employer, with approximately 1.2 million civil servants on the public payroll. The compensation bill, including salaries, allowances, and benefits, has historically consumed over 45 percent of total government expenditure — a ratio that leaves insufficient fiscal space for capital investment, program delivery, and debt service.
The FBP has addressed public sector wage costs through several mechanisms. A wage freeze implemented during the 2015-2017 austerity period held nominal salary levels constant, allowing inflation to reduce real wages. Performance-based pay structures have been introduced in select ministries, linking compensation increases to measurable outcomes rather than seniority. And the broader Saudization strategy — by increasing private sector employment options — has reduced the excess labor supply pressure that drives demand for government positions.
Procurement and Project Efficiency
Government procurement reform under the FBP has introduced competitive tendering requirements, cost-benefit analysis mandates, and project management standards designed to reduce the cost overruns and delays that plagued Saudi megaprojects in previous decades. The Expenditure and Projects Efficiency Authority (EXPRO), established as part of the FBP framework, reviews major capital projects before approval and monitors execution to identify cost savings.
Debt Management and Fiscal Buffers
The FBP has also overseen a fundamental shift in Saudi Arabia’s approach to sovereign debt. The Kingdom, which entered the 2014 oil price crash with essentially zero public debt, has strategically developed a domestic and international bond market. Saudi Arabia’s sovereign debt now stands at approximately 26 percent of GDP — a level that is manageable by international standards and provides fiscal authorities with a valuable financing tool that reduces dependence on oil revenue volatility.
The Saudi sovereign sukuk program has become one of the most active in the global Islamic finance market, and Saudi Arabia’s conventional bond issuances have been among the most heavily oversubscribed emerging market offerings, reflecting strong investor confidence in the Kingdom’s fiscal trajectory.
Foreign reserve management has been recalibrated, with SAMA maintaining reserves at approximately $440 billion — sufficient to cover over 16 months of imports — while the Public Investment Fund deploys an additional portion of the Kingdom’s wealth in strategic investments both domestically and internationally.
Non-Oil Revenue as a Share of Total Revenue
The single most important metric for assessing FBP success is the share of non-oil revenue in total government income. This ratio has increased from approximately 12 percent in 2015 to approximately 34.8 percent in 2025. The FBP targets raising this share above 40 percent by 2030, with some internal projections suggesting 45 percent may be achievable under favorable conditions.
To appreciate the magnitude of this shift: Saudi Arabia has compressed into a single decade a fiscal diversification journey that took countries like Norway and the UAE two to three decades to achieve. The introduction of income taxation — currently absent from the Saudi fiscal framework for nationals — remains a politically sensitive option that could accelerate non-oil revenue growth further, though there are no current plans for its introduction.
Risks and Outlook
The FBP faces several persistent risks. Oil price spikes, paradoxically, pose a political risk to fiscal reform — when oil revenues surge, political pressure to reverse VAT increases, restore subsidies, and expand government spending becomes intense. The FBP’s long-term success depends on maintaining reform momentum during good times as well as bad.
The social contract implications of fiscal reform are significant. Saudi citizens have historically accepted limited political participation in exchange for generous government provision of services, employment, and subsidies. As the FBP shifts costs onto citizens through taxation and subsidy reform, the implicit social contract is being renegotiated — a process that requires careful political management.
International economic conditions, including global interest rates, emerging market risk appetite, and trade dynamics, affect Saudi Arabia’s borrowing costs and investment returns, creating external vulnerabilities that the FBP must manage.
Despite these risks, the Fiscal Balance Program has achieved more in eight years than most observers thought possible when it was launched. The Kingdom’s fiscal position has been transformed from existential vulnerability to structural resilience. The remaining challenge — raising non-oil revenues above 40 percent while maintaining social stability and investment momentum — is demanding but achievable. The FBP has proven that Saudi Arabia can tax, reform, and modernize its fiscal architecture. The question now is whether it will sustain the political will to complete the job.