Saudi Arabia Borrows to Fund Megaprojects Amid Economic Diversification
Saudi Arabia aims to boost economy, investing in ambitious projects
Saudi Arabia, amidst its ambitious ruler Mohammed bin Salman’s Vision 2030, is actively borrowing funds to support a series of grand-scale initiatives, including the highly anticipated $500 billion Neom desert megacity, according to a recent report by The Wall Street Journal.
With the aim to diversify its economy and establish itself as a global technology and innovation hub, Saudi Arabia is making immense financial investments. The country’s Public Investment Fund, responsible for funding cornerstone “gigaprojects,” projects its lowest level of available cash, standing at roughly $15 billion, plungeing it into the realm of borrowing.
The Financial Challenges and Ambitious Projects
The funding constraints faced by Saudi Arabia point towards the potential scaling back or delay of certain projects due to financial obstacles, as suggested by financial experts.
“It’s mind-boggling the amount of stuff that’s trying to be done here,” Tim Callen, a visiting fellow at the Arab Gulf States Institute think tank in Washington, told The Journal. He projected that the Public Investment Fund may necessitate an additional $270 billion by 2030, which is expected to be achieved by further borrowing, in addition to utilizing foreign currency reserves that are used to peg the Saudi riyal to the dollar.
The Ambitious Projects in Focus
Under the Vision 2030 initiative, Saudi Arabia has outlined grand projects, seeking to enhance various sectors of the country:
- Development of the ancient city of Diryah, with a budget of $62 billion
- Creation of a luxury Red Sea eco-resort, with an investment of $23.6 billion
- Transformation of a Persian Gulf oil rig into an adventure tourism resort, with $5 billion allocated
An array of other projects falls under the Vision 2030 initiative, as Saudi Arabia continuously aspires for economic prosperity and development.
Financial Initiatives
To augment available funds, Saudi Arabia is adopting various financial measures. In January, the Saudi Arabian government successfully raised $12 billion by selling bonds, as reported by Bloomberg. Additionally, the Public Investment Fund sold bonds worth $5 billion. The Journal estimated that selling an additional 1% stake in the state oil company, Aramco, could raise an impressive $20 billion.
However, a potential concern lies in the fluctuating oil prices. According to the International Monetary Fund, the minimum oil price required to sustain Saudi Arabia’s extensive spending commitments is approximately $86 per barrel. Although Brent crude, the global benchmark, averaged at a lower $83 per barrel in the previous year, the overall economic feasibility is an area of scrutiny.
Furthermore, increased costs and funding issues may lead to the potential scaling back or delays in implementing certain projects, as highlighted by Karen Young, a nonresident senior fellow at the Middle East Institute.
This borrowing spree by Saudi Arabia signifies the nation’s determination to progress rapidly in its economic diversification and pursue an array of groundbreaking developmental projects.
