How Did the Ambitious Projects of Bin Salman Drain Saudi Arabia’s Resources?

Despite Bin Salman's investments in ambitious projects across various civil sectors, including real estate, infrastructure, transportation, and the development of tourist destinations, with the aim of fostering a more prosperous Saudi Arabia in the future, experts warn that mismanagement of financial resources and excessive spending on entertainment, such as football and music, could present economic challenges for the country.

Figures from the Saudi Arabian Ministry of Finance reveal that the nation's budget deficit surged by 80% in the second quarter of 2023, driven by increased expenditures associated with investment initiatives and social welfare programs, reaching $1.4 billion (5.3 billion Saudi riyals).

Saudi Arabia's economy is expected to slow down notably this year due to a significant reduction in oil production, in line with the OPEC-Plus agreement aimed at stabilizing global oil markets, marking a sharp contrast to the 8.7% growth rate experienced last year.

According to the latest report on the global economic outlook by the International Monetary Fund, Saudi Arabia's economic growth prospects show the most substantial decline among major economies.

However, there's more to the story. The Wall Street Journal recently published a report highlighting the potential adverse effects of Bin Salman's extravagant projects and the hosting of large-scale festivals, cautioning against fiscal irresponsibility and budgetary waste.

Saudi Arabia is currently undertaking extensive projects like the "NEOM" initiative, covering an area exceeding 26,000 square kilometers. This extensive venture extends from the Red Sea shores in Saudi Arabia to those in Egypt, linking the Gulf of Aqaba to Jordan, with a budget of $500 billion.

The "NEOM" mega-project will comprise 10 sectors, with four announced to date, featuring a 170-kilometer-long urban expanse named "the line." Other sectors include an octagonal port city named "oxagon," a ski resort called "trojena," and an island resort known as "sindalah." Noteworthy architectural firms involved in this endeavor include Morphosis from the USA, Chap from the UK, BIG from Denmark, Zaha Hadid Architects from the UK, Mecanoo and UNStudio from the Netherlands, Aedas from the USA, LAVA from Germany, and Bureau Proberts from Australia.

Furthermore, a separate $48 billion real estate development project aims to establish a global airline, supported by a $100 billion investment in chips and electronics.

The Wall Street Journal's report highlights that Saudi Arabia's Public Investment Fund (PIF), entrusted with executing these ventures, disclosed last month that its liquidity had dwindled to approximately $15 billion by September, marking a decline of roughly three-quarters from December 2020, when the fund commenced operations.

Bloomberg also noted that the outlays of the Kingdom's Public Investment Fund surged to $31.5 billion in 2023, positioning it as one of the most active government investment funds during the previous calendar year. Global government fund expenditures for the same period are estimated at $123.8 billion.

Saudi Arabia has resorted to borrowing to sustain its extensive investments and address the mismanagement of financial resources, resulting in a global rise in interest rates and adjustments in oil prices.

In January 2023, as reported by the newspaper, Saudi Arabia placed orders worth $35 billion with Boeing for aircraft, half of which were allocated to new airlines, despite allocating significant sums to procure high-profile football players for its domestic league. The report, citing Tim Callen, a researcher at the Persian Gulf States Institute in Washington, suggests that Saudi Arabia may require an additional $270 billion in aid for the public investment fund by 2030.

Callen suggests that this requires accepting greater financial risks, either by adding debt or reducing reserves that keep the Saudi riyal tied to the dollar.

The Saudi government previously forecasted that the public debt would rise to approximately 26% of the country's gross domestic product by the end of 2024. Saudi Arabia initiated the new year with indebtedness to bridge this gap. The Saudi Arabian National Debt Management Center declared in a statement on Tuesday the successful completion of the inaugural international bond issuance of 2024, valued at $12 billion, delineating that these bonds are segmented into three parts.

The initial segment, amounting to $3.25 billion, is allocated to 6-year bonds maturing in 2030, followed by $4 billion for 10-year bonds maturing in 2034, and $4.75 billion for 30-year bonds maturing in 2054. The royal family turned to the debt markets in January 2023 to release bonds in three tranches totaling $10 billion, followed by sukuk worth $6 billion in May. It's noteworthy that sukuk is utilized in Arab countries for financing purposes and financial commitments. The issuance of these sukuk indicates the Saudi Arabian National Debt Management Center's ongoing evaluation of additional financial activities at both local and international levels in alignment with the approved annual borrowing plan.

Reports suggest that Riyadh plans to offer approximately one percent of the state-owned oil giant Aramco to stock market investors, potentially generating around $20 billion. For the first time in its history, Saudi Arabia's Aramco oil field is issuing 50-year bonds. The financial director of the state oil production company indicates that Aramco may issue bonds this year as financial markets improve, aiming to alleviate its long-term debt burden.

Economic experts argue that Saudi Arabia's persistent efforts to stabilize oil prices by reducing production have resulted in negative economic growth for the country, with Riyadh facing criticism for its poor economic performance.