Loans for the Kingdom: Is Saudi Arabia running out of money for Vision 2030?

Loans for the Kingdom
Is Saudi Arabia running out of money for Vision 2030?

By Kevin Schulte

Even in Saudi Arabia, money is no longer so loose at the moment. Despite all the major investments in huge construction projects, a new airline and football, expert Sebastian Sons speaks of a “challenging situation”. Saudi Arabia has now even had to do something it has avoided for years: take out loans to make Vision 2030 a success.

Saudi Arabia is the epitome of gigantism. The strictly Islamic kingdom is building a huge future city in the middle of the desert, investing heavily in the microchip and electronics industry, founding a new state-owned airline and throwing huge amounts of money into e-sports, gold, boxing and football.

The country finances the large projects with money from its sovereign wealth fund, one of the largest in the world. worth over 600 billion US dollars. No sovereign wealth fund invested more money last year than the Saudi one. A good quarter of the money that all sovereign wealth funds worldwide will have spent in 2023 will go to the Public Investment Fund (PIF).

By 2030 it is expected to grow to two trillion US dollars and become the largest fund in the world. Times are more complicated than ever for the bulging PIF. In order to keep the money supply open, Saudi Arabia has recently even taken out loans. A drug that the kingdom has “avoided in recent decades,” writes the Wall Street Journal.

Accordingly, the state also wants to sell shares in the oil giant Saudi Aramco. The mammoth projects have to be financed somehow. “Saudi Arabia invests a lot of money in a wide variety of projects at home and abroad. The Saudi sovereign wealth fund in particular is the driving force here. And this money comes largely from oil revenues,” reports Middle East expert Sebastian Sons from the Carpo research institute in the ntv -Podcast “Learned something again”.

Oil revenues are declining

Although Saudi Arabia generated enormous oil revenues during the pandemic, the situation will look different in the future, emphasizes Sons. “You have to expect that revenues will decline. Accordingly, the situation we are seeing now is a delicate one. I wouldn’t say the situation is problematic, but at least it is a challenge for the Saudi state, the ambitious ones “To fulfill the goals of Vision 2030.”

Saudi Arabia has been planning for years that one day oil money will no longer flow into the national budget because the black gold is drying up. That’s why the billions of oil collected are invested in a wide variety of projects. Eight years ago, Crown Prince Mohammed bin Salman launched Vision 2030 – designed by the management consultancies McKinsey and Boston Consulting Group.

Vision 2030? “It’s the little things that matter”

For the kingdom, it is also about polishing up its own image. This is also the reason why superstar Cristiano Ronaldo and many other prominent footballers now play in the Saudi league and why the desert state is hosting the Football World Cup in 2034.

But such projects are only the media-effective beacons. Other things are crucial for the success of the future vision, says expert Sons in the podcast. “Vision 2030 is, first and foremost, an attempt to transform the entire Saudi economy and also society. We see huge projects like Neom, but people in Saudi Arabia are more interested in the smaller things that are not so sexy: more affordable Housing, public transport, kindergarten and school places as well as affordable cultural events.”

Sons praises the fact that there have been “massive advances” in recent decades that “not only benefit the elites.” The position of women in the country in particular has improved: Until a few years ago, Saudi women were excluded from many jobs, were not allowed to drive a car and were not even allowed to have a passport. In the meantime, that has changed.

The human rights situation remains catastrophic

However, the catastrophic human rights situation has remained the same. People in Saudi Arabia can be imprisoned for up to 45 years for statements critical of the government. Homosexuality is prohibited and the death penalty is sometimes imposed for minor offenses.

The case of Jamal Khashoggi is also unforgettable. The government critic entered the Saudi consulate in Istanbul in 2018, but never came out because he was dismembered on site. US intelligence agencies are convinced that Crown Prince Mohammed bin Salman himself ordered the murder.

The core of Vision 2030 is the “renegotiation of the traditional social contract,” says Sons. Saudi Arabia is still a conservative Islamic country, but the crown prince has recognized that it cannot work alone in the rigid old ways of thinking.

“In Saudi Arabia it was often about calming old elites and negotiating a deal together. Traders, families with influence, religious scholars are still important, but these days this vision is aimed more at young people.” Sons makes it clear that religious politics still plays an important role in conservative Saudi Arabia, but under new circumstances. “And they say: we have to open up.”

Next deficit expected

Vision 2030 is crucial for opening up the country. And it is currently under greater financial pressure than before. Sons has been dealing with the ultra-conservative Islamic kingdom for years and knows: “When the price of oil is high, then Saudi Arabia is doing well.”

According to current estimates, oil prices will fall slightly in 2024 compared to the previous year. This will have a direct impact on government finances: Saudi Arabia is expecting one this year Budget deficit of $21 billionwhich is around two percent of annual economic output.

That’s a lot for Saudi Arabian standards. Many people in the country are rich Royal family is the fourth richest in the world, the GDP is now higher than that of Switzerland, the Netherlands, Norway and Sweden. In the past there were even some Surpluses in the double-digit percentage range No rarity. That is why the current situation is a major challenge on the way to Vision 2030.

“Learned something again” podcast

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