Saudi Arabia is undergoing a significant economic transformation, driven by the diversification of its historically oil-dependent economy. At the heart of the Kingdom’s diversification initiative lies a sovereign wealth fund that is among the largest in the world.
While the Kingdom’s bold Vision 2030 agenda has garnered global attention, behind the scenes another critical transformation is taking place – the evolution of Saudi Arabia’s public finance management (PFM) practice.
PFM, in simple terms, is the process of budgeting and accounting for a nation’s finances. With countries across the globe facing economic headwinds, effective public finance management has been brought into even sharper focus for many governments. While inflated energy prices may have been a boon to the region, the leadership will recognise the changing tides disrupting its development goals. Consequently, the Saudi government has transitioned to a PFM aligned with international best practices, similar to that of the United Kingdom.
The principal change has been the shift from cash-based accounting to accruals-based accounting using the International Public Sector Accounting Standards (IPSAS) framework, which is fundamental to a robust PFM system.
Accruals accounting carries the benefit of having a balance sheet to record assets and liabilities in one place – improving transparency, asset management, and risk management. Examining how these three elements are improved underlines the importance of the new trajectory Saudi Arabia has taken in establishing strong PFM.
Transparency
The Saudi government will be able to make informed decisions regarding fiscal policy by considering the impact of government policies on balance sheet metrics. This enables a broader view of the entire public sector balance sheet, beyond just public debt, strengthening assessments of fiscal sustainability.
The government will also be better equipped to make decisions about buying or selling assets and settling or incurring liabilities, as they will be able to use not only the balance sheet but also income flows over the longer term. This will also help with assessing value for money and a rationale for asset management.
Asset Management
Effective asset management is central to good PFM. During its transition from cash to accruals accounting, Saudi Arabia will be strengthening its asset management registers, which record the quantity and quality of available assets. This will enable the creation of maintenance and renewal schedules.
Through this process, the government can also rationalise its assets, understanding which assets are necessary for delivering public services, which assets can be leased, and whether the assets are in the right location.
Risk Management
Good PFM requires the identification and mitigation of balance sheet risks. This is especially important, since governments are often required to act as an insurer of last resort when markets effectively stop operating. For example, a government can act as insurer for assets which may be impacted by natural disasters. With climate-related impact increasing, implementing robust PFM practices is necessary to manage these specific risks.
“Saudi Arabia has shown a clear commitment to implementing robust processes and frameworks to sustain its Vision 2030 ambitions”
More than just a balance sheet risk, climate change impacts economies, society and the environment. In September 2025, IPSASB is expected to publish their first sustainability standard focusing on climate-related disclosures, which is likely to be closely tied to the Paris Agreement and the United Nations’ Sustainable Development Goals (SDGs).
The task at hand requires a clear, coherent strategy, backed by policy reform that is widely understood and agreed upon. With effective PFM, the Kingdom will ensure that robust reporting structures, information flows and governance frameworks are embedded.
Saudi Arabia has shown a clear commitment to implementing robust processes and frameworks to sustain its Vision 2030 ambitions – and its move to adopt stronger PFM practices will undoubtedly underpin the Kingdom’s efforts to remain economically sustainable.
