In 2021, Saudi Arabia introduced a crucial component to its Vision 2030: the National Investment Strategy (NIS), outlining necessary investments and stakeholders. This ambitious plan requires a total investment of $3 trillion from 2019 to 2030, triple the country’s GDP for 2023.
Fiscal Strategy Shift
Saudi Arabia’s fiscal policy, traditionally linked to oil price fluctuations, is evolving. Historically procyclical, the budget has varied with oil prices, but now aims for budget surpluses and debt reduction. The government plans to use its fiscal space more effectively, running a budget deficit until 2030 to finance Vision 2030, with an IMF-targeted average deficit of 3% from 2024 to 2029.
Role of the Public Investment Fund (PIF)
The PIF, crucial to the strategy, is expected to invest $800 billion, focusing on “giga-projects.” Despite running a deficit due to oil revenue dependencies, the PIF’s assets have increased significantly, partly due to Aramco stake transfers. This raises questions about future resource growth, with borrowing as a potential solution.
Involvement of Publicly-Owned Companies
The Shareek program, launched with the NIS, aims to leverage large publicly-owned companies for investment, contributing $1.3 trillion. This aligns with Vision 2030’s industrial policy, with eight companies committing to $51 billion in strategic projects.
Attracting Foreign Investment
Foreign investors are expected to contribute $500 billion, crucial for Vision 2030’s success. However, foreign direct investment has lagged behind targets due to business environment challenges and investor skepticism about project feasibility.
Can Saudi Arabia Fund Its Ambitions?
The IMF is uncertain about Saudi Arabia’s capacity to meet its goals without fiscal strain. The Kingdom is recalibrating Vision 2030 funding, which might result in project rescheduling. This approach is welcomed for its pragmatic management, yet clarity on resource allocation and economic strategy remains essential.
Key priorities include:
- Accurate assessment of public sector resources.
- Defined project priorities and expected outcomes.
- Clarification of debt impacts.
- Understanding economic policy trade-offs, especially given the reliance on oil revenue during diversification.
The Neom project is part of this vision, aiming to create a futuristic megacity to diversify Saudi Arabia’s economy.