Has Saudi Arabia kept up with its mega-project spending spree? | Wilnesh News

In the desert of northwestern Saudi Arabia, a massive construction site is filled with cranes and pile drivers and surrounded by a newly built road. Two tracks cut through the site like deep cuts in the sand, forming what planners call the backbone of the high-speed rail system.

Skeleton infrastructure forms the basis of The Line, a multibillion-dollar high-tech city that its architects say will eventually house 9 million people between two glass skyscrapers 106 miles long and more than 1,600 feet tall people.

The project, expected to cost hundreds of billions of dollars, is just one of Naom’s planned ultra-futuristic venues, the brainchild of Saudi Arabia’s Crown Prince Mohammed bin Salman, who hopes the area will serve as a hub for Saudi Arabia. Land Arabia brought millions of new Arab residents and revolutionized life and technology in the country. It is a central pillar of Vision 2030, which aims to diversify the Saudi economy away from dependence on oil revenue and create new jobs and industries for its rapidly growing young population.

The cost of Neom is Estimated to be as high as $1.5 trillion. Since the announcement, Saudi Arabia’s Public Investment Fund, a massive sovereign wealth fund that currently manages $925 billion in assets, has poured billions of dollars into overseas investments, with more foreign investors pouring into the kingdom. Arab raises cash.

This year, however, there has been a sharp change in the direction of spending, with a clear emphasis on keeping investment at home and reports of cost cuts on large projects such as Neom. The changes come amid rising Saudi deficits, oil demand prospects and continued low global oil prices.

This begs the question: Does Saudi Arabia have enough money to achieve its lofty goals? Or will it have to be more nimble to make its spending trajectory sustainable?

A Gulf financier with many years of experience in Saudi Arabia told CNBC: “The PIF’s shift to domestic investment has been widely recognized, but now it is officially recognized, it shows that there is still a lot of spending required. Saudi Arabia has invested in projects Tens of billions of dollars yet to suggest any financial return.

The financier spoke anonymously because they were not authorized to speak to the media.

Andrew Leiber, a researcher at Tulane University who studies the political economy of the Middle East, believes the current pace of spending will not continue.

“The number of ‘let’s pay first and then hope for a financial return’ mega-projects currently underway is unsustainable,” Leiber said.

“Having said that,” he added, “the Saudi Arabian monarchy has shown some flexibility whenever economic realities set in. I do think that eventually, some projects will be quietly shelved in order to free up their finances.” Expenditures are brought back into the budget.

Saudi Arabia in October cut its growth forecast and raised its budget deficit forecast for the 2024-2026 fiscal years as it expects a period of higher spending and oil revenue is expected to fall. Real gross domestic product is now expected to grow 0.8% this year That was a sharp drop from a previous estimate of 4.4%, according to the Treasury Department.

The country’s economy has also swung sharply from a budget surplus of $27.68 billion in 2022 to a deficit of $21.6 billion in 2023 due to increased public spending and reduced oil production due to the OPEC+ production cut deal. The government projects a deficit of $21.1 billion in 2024, with revenue of $312.5 billion and spending of $333.5 billion.

Saudi authorities expect budget deficits to continue to run in the coming years as they pursue Vision 2030, but add that they are well prepared for this.

“Our non-oil revenues have grown significantly and now account for around 37% of expenditures,” said the Saudi Finance Minister. “This is significant diversification, which gives you a sense of comfort that despite oil price fluctuations, you can still maneuver and Stay Stable. “Our goal is to make sure our program is stable and predictable. “

“We are not blinking, we have significant financial resources and we are very disciplined in our fiscal position,” the minister said.

Saudi Arabia has an A/A-1 credit rating with a positive outlook from S&P Global Ratings, and an A+ rating with a stable outlook from Fitch Ratings. Coupled with high foreign exchange reserves – US$456.97 billion as of September, an annual increase of 4%, According to the country’s central bank This allows Saudi Arabia to easily manage its deficit, economists told CNBC.

Riyadh successfully issues bonds, Leveraging debt markets to raise more than $35 billion So far this year. Saudi Arabia has also introduced a series of reforms to promote and reduce foreign investment risks and diversify revenue sources, which S&P Global said in September “will continue to improve Saudi Arabia’s economy.” Resilience and Wealth”.

Asked whether the kingdom’s spending trajectory was sustainable, Al-Jadan responded: “Of course, yes,” adding that the government had recently released data for the next three years, “and we think it’s very sustainable.” of” .

Still, many analysts outside the Kingdom, as well as individuals within the Kingdom and working on the NEOM project, are skeptical of the feasibility of the large-scale project. Report Dramatic cuts to some projects – in the case of high-speed rail, where the size target was cut from 106 miles to 1.5 miles, and the population target was slashed from 1.5 million to less than 300,000 by 2030 – underscore this concern at a higher level.

Neom executives admit that the current phase of work on The Line is to build 1.5 miles of building length, which would still make it the longest building in the world. However, they said the end goal of 106 miles had not changed, stressing that cities were not built overnight and construction was still apace.

For Tariq Solomon, chairman emeritus of the American Chamber of Commerce in Saudi Arabia, “there is hope for transparency and some program cuts.”

“The increase in Saudi external borrowing reflects challenges to the viability of Vision 2030,” he told CNBC.

“While debt at 26.5% of GDP remains manageable, continued minor pressures add up to underlining the need for fiscal discipline and achievable targets.”

Solomon noted that many Saudi Arabian residents want to improve the infrastructure they use in their daily lives, such as public transportation, internet connectivity, schools and health care in Riyadh.

“Saudi Arabia’s path to resilience is not about building ski resorts in the desert, but about building it through innovation, complexity and the courage to pursue real impact,” he said.