Saudi Arabia is an arid nation experiencing a severe shortage of freshwater, which necessitates reliance on costly, energy-intensive seawater desalination to meet rapidly growing residential demand. Per-capita domestic water use is very high by international standards, reflecting both climatic conditions and the effects of low tariffs and high system losses. The Saudi government has launched an investment program aimed at reducing water system losses from 36% in 2024 to 15% by 2031. This paper estimates the program’s impact on domestic water demand, desalination costs, and fiscal liabilities. Using an econometric model based on the Stone-Geary utility function, we estimate that the program would help meet projected water demand – distinguishing between subsistence and variable water consumption – while avoiding the need for 2 billion m3/year of desalination capacity and 7.6 TWh of electricity demand by 2050 (equivalent to about half of current electricity consumption in Madinah). We also calculate that water tariff revenues (US$0.65* billion in 2025) cover only about 20% of the levelized cost of desalination ($3.2 billion in 2025), leaving a cost recovery gap – or fiscal liability – rising from $2.6 billion in 2025 to $4.6 billion per year by 2050, even before accounting for water transmission and distribution system costs. Without the government program, the total fiscal liability accumulated from subsidized desalination over the 2025-2050 period could reach $91.4 billion. Implementation of the program would reduce desalination subsidy requirements by $0.5 billion in 2031 and nearly $1 billion in 2050. Over the 2025-2050 period, cumulative fiscal savings would reach $17.5 billion.
