Saudi Arabia's Ambitious Spending Spree: Vision 2030's Fiscal Strains and Bold Investments

Saudi Arabia has been launching numerous ambitious projects over the past year, including a $48 billion property development, a global airline initiative, a merger with the PGA Tour, and a significant $100 billion investment in the semiconductor and electronics sectors. However, these ventures are proving to be quite costly, with the country's sovereign-wealth fund reporting a significant decrease in cash levels to about $15 billion as of September, the lowest since December 2020. In response, Saudi Arabia is increasingly turning to borrowing, a method it has avoided in recent decades, and is planning another large sale of stock in Saudi Aramco.

These financial strategies highlight Crown Prince Mohammed bin Salman's vision to diversify Saudi Arabia's economy and transform it into a global powerhouse by 2030. The development plan, known as Vision 2030, aims to create an economically diverse Saudi Arabia and includes several "gigaprojects" such as New Murabba, a yacht resort on the Red Sea, and Neom, a futuristic city with a $500 billion price tag.

Despite these grand plans, Saudi Arabia's oil revenues have stabilized, and the International Monetary Fund estimated that oil prices would need to exceed certain levels to balance the government's budget. The country also experienced an economic contraction in 2023 and is expected to run budget deficits through 2026. To address the financial shortfall, Saudi Arabia has initiated substantial debt sales, issuing $12 billion in bonds in early January and an additional $5 billion in bonds through its Public Investment Fund.

Saudi Arabia's ambitious spending and borrowing underscore the crown prince's extensive ambitions and the potential fiscal strains in a world of moderate oil prices and elevated interest rates. The country's strategy involves significant financial risk, including the possibility of increasing debt or lowering reserves essential for maintaining the Saudi riyal's currency peg. Despite the financial challenges, Saudi Arabia continues to pursue its Vision 2030 goals, aiming to transform its economy and position itself as a leading global power.