Megaprojects in the Desert Sap Saudi Arabia’s Cash

Saudi Arabia has been a conveyor belt of flashy spending plans over the past year: a $48 billion property development anchored by a quarter-mile-tall cube; a global airline to rival aviation giants; a merger with the PGA Tour; a $100 billion investment in chips and electronics.

It is all getting rather expensive.

The country’s sovereign-wealth fund, which is tasked with these initiatives, last month said its cash levels as of September had fallen by roughly three-quarters to about $15 billion, the lowest since December 2020, when the fund began reporting the data.

To keep the spending taps open, the kingdom has turned to a tool it has shunned in recent decades: borrowing. It also plans another gargantuan sale of stock in the country’s crown jewel, oil behemoth Saudi Aramco, according to people familiar with the sale.

The supersize spending and borrowing underscore Crown Prince Mohammed bin Salman’s expansive ambitions for the country and show how they could face fiscal strains in a world of elevated interest rates and moderate oil prices.

The kingdom is now halfway through an economic development plan called Vision 2030, which aims to turn Saudi Arabia into an economically diverse powerhouse. Prince Mohammed has described his vision to remake the Middle East into “the new Europe.”

The country last spring ordered $35 billion of jets from Boeing, half for the new airline. The sovereign-wealth fund has shaken the economics of professional golf and soccer through a proposed merger of its LIV Golf and PGA and weighty offers to poach Premier League soccer players for the local Saudi league.

There are also new commitments, including a plan to spend $38 billion developing an esports and videogame sector and to create a homegrown electric-car manufacturing industry.

Vision 2030, paired with social liberalization moves such as the integration of women into the workforce and a more activist foreign policy, have been signatures of Prince Mohammed’s de facto rule over the country of 36 million people.

Among the most expensive elements are an array of what he calls “gigaprojects.” They include New Murabba, a Riyadh development with the giant cube, and a yacht resort on the Red Sea. The most notable is a planned sci-fi-like city of nine million called Neom that features a pair of mirror-glass-covered, 110-mile-long buildings taller than the Empire State Building with a $500 billion price tag.

Much of the spending is only just ramping up. A $62 billion Riyadh gigaproject called Diriyah is a sea of construction cranes, while armies of excavators are digging foundations for the first sections of Neom’s lengthy towers. Neom last month committed $5 billion to build a dam at the base of a planned arid mountain ski resort marked by its heavy reliance on artificial snow-making.

Academics who study the fund say it could need hundreds of billions of dollars more from the Saudi state. The 2030 plan calls for the wealth fund, known as the Public Investment Fund to manage $2 trillion in assets, up from $718 billion as of September. PIF has said it expects to receive more funding from the government.

“It’s mind-boggling the amount of stuff that’s trying to be done here,” said Tim Callen, a visiting fellow at the Arab Gulf States Institute think tank in Washington. He estimates the government may need to contribute another $270 billion into PIF by 2030. “It will involve taking more risk” fiscally, he said, either by adding debt or lowering reserves that keep the Saudi riyal currency pegged to the dollar.

At the same time that spending has ramped up, oil revenues have leveled off. The IMF estimated oil prices would need to be above $86 a barrel in 2023 and $80 a barrel this year to balance the government’s budget. Prices have hovered around $81 over the past year. Despite the huge spending, Saudi Arabia experienced a rare economic contraction in 2023.

This year, Saudi Arabia is expected to run a budget deficit of $21 billion, or about 2% of the country’s gross domestic product. Riyadh projects it will run small annual deficits through 2026, a change from a previous forecast for surpluses.

To make up the gap, Saudi Arabia started the year with two massive debt sales. In early January the government caught investors off guard with a $12 billion bond offering. Just days earlier, it estimated it would borrow around $9 billion from international debt markets in all of 2024. A few weeks later, PIF separately sold $5 billion in bonds.

Outside of the U.S., Saudi Arabia has more outstanding dollar-denominated bonds—roughly $100 billion—than any entity in the world except for the World Bank.

No one is predicting an imminent financial meltdown for the country, which has plenty of fiscal breathing room. Saudi Arabia’s debt is expected to reach 26% of its gross domestic product this year after bottoming out at a level of 1.5% a decade ago, according to Capital Economics.

Such debt levels are conservative—budget-conscious Germany’s debt-to-GDP ratio stands more than twice as high. Foreign-currency reserves at the Saudi central bank are around $400 billion, down from $700 billion in 2015. Saudi Arabia uses that money to maintain its currency’s peg to the dollar and in the past has transferred some to PIF.

Questions about whether the pace of debt issuance will continue have weighed on Saudi bond prices and driven up the interest rate it pays to borrow, said Razan Nasser, a sovereign analyst at T. Rowe Price. The country’s 10-year government bonds trade at a yield of around 5.3%, compared with yields below 5% for similar bonds from the U.A.E. and Qatar.

Another way to raise cash: Riyadh has plans to sell 1% of state oil company Aramco to stock-market investors, according to the people familiar with the sale. The move could bring in around $20 billion. Proceeds from Aramco’s $25.6 billion initial public offering in 2019, the largest of all time, largely went to PIF. The sovereign fund owns 8% of Aramco.

An Aramco share sale poses trade-offs. It decreases one of the state’s single biggest sources of ongoing revenue: Aramco dividends.

The pace of spending last year made PIF the world’s most active sovereign-wealth fund, according to data firm Global SWF. PIF spent $32 billion across 49 acquisitions and other deals tracked by Global SWF, up 33% from the year before.

Saudi Arabian officials say they want outside investors to help share the burden. The country recently implemented judicial reforms to make the legal system more friendly to outside money. But direct foreign investment in 2030 projects has been limited. Concerns linger about earlier generations of ambitious developments that later stalled. And some investors remain wary about the reputational stain from the 2018 killing of journalist Jamal Khashoggi.

Karen Young, a nonresident senior fellow at the Middle East Institute, said many of the giant projects may be pulled back or stalled as costs mount and their effectiveness becomes more clear, but the state will likely keep pumping money into PIF for the next few years.

“I think you will see a splashout up till 2030, and then there will be a reckoning,” she said.

Summer Said and Ben Dummett contributed to this article.

Write to Eliot Brown at [email protected] and Chelsey Dulaney at [email protected]