Saudi Arabia’s Cash Reserves Plummet Amid Mega-Projects Push

As Saudi Arabia continues to push for mega-projects such as Neom City, it appears that their cash reserves are rapidly dwindling. As a result, they are expanding borrowing to secure funds for their ventures.

According to a report by The Wall Street Journal (WSJ) on the 21st, as of September last year, the cash holdings of the Saudi Arabian sovereign wealth fund, the Public Investment Fund (PIF), had decreased by 75% from a year earlier to $15 billion. This is the lowest figure since PIF started disclosing related data in December 2020.

This is due to the expansion of mega-project investments by “Vision 2030.” This is a medium-to-long-term development plan to escape from the oil-centric economic structure. With managed assets of $600 billion, the PIF is the world’s sixth-largest sovereign wealth fund and a key source of funds for the “Vision 2030” reform.

Neom City, a project for developing a new advanced city, is a representative mega-project pursued by Saudi Arabia. The new town, which is being built in the northwest of Saudi Arabia, is 43 times the size of Seoul at 10,230 square miles. The total investment amounts to $500 billion. They also promote the Diriyah Gate project, a new city development project at the Diriyah archaeological site.

Tim Gallon, a researcher at the Arab Gulf States Institute, told WSJ, “It is estimated that PIF will have to invest an additional $270 billion by 2030 to carry out all mega-projects,” and pointed out, “To do this, they have to take on more financial risks such as expanding borrowing.”

Saudi Arabia is actively borrowing. Earlier this year, Saudi Arabia issued government bonds worth $12 billion, a figure significantly higher than the market expectation of $9 billion. Following this, PIF also issued bonds worth $5 billion.

In addition, they are also pushing for the sale of shares in the state-owned oil company, Aramco. The scale of the sale is expected to reach $10 billion.

According to Capital Economics, the ratio of debt to GDP in Saudi Arabia is expected to reach 26% this year, up from 1.5% ten years ago. The foreign currency reserves of the Saudi Arabian Central Bank have decreased from $700 billion in 2015 to the current $400 billion.

Meanwhile, Saudi Arabia is promoting “Vision 2030,” a medium-to-long-term development plan to escape from the oil-centric economic structure. This is a strategic national evolution to reduce Saudi Arabia’s dependence on oil, diversify the financial structure, and promote healthcare, education, infrastructure, recreation, and tourism. The goal is to increase non-oil sector exports from 16% in 2016 to 50% by 2030.