Saudi Arabia’s budget deficit widened in the second quarter as the government raised spending on social benefits and projects meant to diversify the economy from oil.

Government income rose, driven mainly by higher non-oil revenue, which Crown Prince Mohammed bin Salman is trying to grow as he looks to end boom-bust oil cycles of the past. Still, the government’s deficit came in at 5.3 billion riyals ($1.4 billion), around 80% higher than that for the first quarter.

An 12% increase in revenues was outpaced by a nearly 13% rise in expenditure, largely due to a doubling of social benefits and a jump in capital expenditure.

Non-oil revenue increased 32% to 135 billion riyals, according to a budget report from the Ministry of Finance published Thursday. Oil income rose 0.6% to 180 billion riyals during the quarter, but fell 28% year-on-year.

Oil Cuts and Price Drop Slow Saudi Arabia’s Economy

The government is still predicting a fiscal surplus for the full year, even as many economists forecast a deficit.

The economy surged in 2022 as Russia’s invasion of Ukraine sent crude prices above $100 a barrel and Riyadh pumped record volumes. But growth has slowed in recent months, with oil prices dipping and the Saudis opting to cut supply to prop them up.

Saudis Extend 1 Million-Barrel Oil Cut, Say Can Be Deepened

This month, the kingdom got the largest growth downgrade among major economies from the International Monetary Fund. The Washington-based lender cut the kingdom’s outlook for 2023 to 1.9%, a revision of 1.2 percentage points.

For all the kingdom’s diversification efforts, progress has been slow and the economy remains heavily reliant on energy. Oil and closely-related products such as chemicals and plastics accounted for around 90% of exports last year, according to Bloomberg Economics.

(Updates with chart, oil-market context in sixth paragraph.)