The 2014 state budget had projected a modest 4.3% rise in expenditure, but higher-than-anticipated revenue in the first half of the year allowed the government to boost spending on infrastructure to support the construction sector, which had been hit hard by a crackdown on illegal labour in 2013.
"With fiscal deficits looming, we think capital spending growth will slow sharply next year and be cut in 2016. Capital spending will still be a hefty SAR 380 billion in 2016 ...and this will certainly be enough to keep the construction sector ticking over," SAMBA said in a note.
The kingdom ramped up spending in recent years, with state expenditure soaring 14% on average every year between 2003 and 2012, according to Reuters, mostly on social welfare projects, public sector wages and infrastructure.
Brent crude prices have fallen below USD 100 for the first time since June 2013 on weaker global demand and rising output from producers outside the Organisation of the Petroleum Exporting Countries (OPEC).
Bank of America Merrill Lynch (BAML) said in a note last week that Saudi Arabia could cope with an oil price of USD 85 per barrel for years, especially as the kingdom boasts an annual budget of USD 230 billion, a running surplus of USD 40 billion, and estimated net foreign assets above USD 1 trillion.
However, earlier this summer, Citibank said it expected the fiscal breakeven oil price for Saudi Arabia to rise above USD 90 per barrel in 2014 and to continue to rise, resulting in forecast deficits as early as 2016.
"Although Saudi has ample resources to finance expected deficits from current cash reserves, the outlook does underscore the need for structural reform to set public finances on a long-term sustainable footing," according to Citibank.
Despite the fiscal cushion, there has historically been a tendency to reduce capital expenditure in times of weak oil prices.
Samba said Saudi Arabia was expected to cut its oil production in 2015 and 2016 to remove some of the slack in global markets, and therefore overall GDP growth would ease to 3.3% next year and to 3.1% by 2016.
BAML said that Gulf Arab oil producers may allow oil prices to drift lower for political reasons amid rising regional tension after Islamic State militants took over parts of Syria and Iraq.
"What could Arab countries offer the West to help contain this threat? Lower oil prices. Plus a dip in prices could benefit Saudi by simultaneously slowing down US shale oil and weakening Iran and IS (Islamic State) financially," BAML said.
"True, the strategy carries risks for Saudi, including a big ramp up in global demand and further turmoil in oil producing countries as prices decline. But the Islamic State may now pose a larger immediate threat."