(Bloomberg) -- Even as Wall Street heavyweights flock to Riyadh for a Davos-style conference, Saudi Arabia is grappling with low oil prices, budget deficits and challenges attracting foreign investment.
That’s forcing the kingdom to lean heavily on another source of funding: debt.
The Saudi government and entities like its Public Investment Fund have issued around $50 billion in bonds in 2024, according to data compiled by Bloomberg, which includes corporate and sovereign sales in US dollars and euros. That flurry of activity has made the oil-rich country one of the biggest issuers of international debt in emerging markets this year. It’s likely to borrow tens of billions of dollars more in 2025, according to Nadim Amatouri, director of fixed income research at Arqaam Capital.
This week, the kingdom kicks off its annual Future Investment Initiative, an event that will draw global names like Goldman Sachs Group Inc.’s David Solomon, Citigroup Inc.’s Jane Fraser and Alphabet Inc.’s President Ruth Porat. It will offer a look at investor appetite for Saudi Arabia as the country pushes to diversify from oil in the face of rising fiscal challenges.
Crude has been trading well below $100 a barrel, despite the kingdom having cut supply along with other members of the OPEC+ cartel, and hundreds of billions of dollars are being spent on Crown Prince Mohammed bin Salman’s Vision 2030 economic-transformation plan.
International investors have so far been slow to put money into key projects such as the new city of Neom.
Inflows of foreign direct investment were the lowest since 2020 last year and stagnated in the first half of 2024, making debt ever more vital to Riyadh’s ambitious projects and developments.
“The deficits are meant to be sustained with debt across a large number of state-related entities, such that there is room for maneuver by new bond issuance and corporate debt,” said Karen Young, a senior research scholar at Columbia University’s Center on Global Energy Policy.
The government itself acknowledges that lower oil prices and mammoth spending needs will squeeze its finances. It expects to post fiscal shortfalls through at least 2027 as it prioritizes spending on its economic diversification.
It has said it will keep borrowing to cover the deficit and will look at other financing to help back major projects.
S&P Global Ratings has said the kingdom remains in a comfortable position to issue more bonds, given its level of debt to gross domestic product remains low relative to most other countries. The ratings company recently boosted its outlook for the country to positive from stable.
Still, the debt-to-GDP ratio is projected to reach nearly 30% next year, according to the International Monetary Fund. While that’s low by global standards, it’s more than double the country’s average for the last decade.
Analysts have said Saudi Arabia would need to show a strong track record and prove its projects can materialize in order to attract more foreign investment.
Inflows of foreign direct investment amounted to about $9.7 billion in the first half of 2024, according to preliminary data. To meet this year’s target of drawing in $29 billion, the kingdom would need to see one of its biggest second-half hauls in history.
Among Riyadh’s funding options would be to introduce an income tax, a measure Gulf nations have long sought to avoid. The IMF has suggested that property levies could also help boost non-oil revenues.
To be sure, the government has said last year’s FDI inflows beat targets based on new methodology.
Still, the government needs crude prices to be over $96 a barrel to balance its budget this year, according to the latest estimates from the IMF. The figure is even higher, at around $112, when the PIF’s domestic spending is taken into account, according to Bloomberg Economics.
Brent crude is trading around $71 a barrel, underscoring the role debt will continue to play in the nation’s ambitious plans.
“The Saudi strategy under Vision 2030 relies upon oil as a financial resource,” said Kristin Diwan, a senior resident scholar at the Arab Gulf States Institute in Washington. “In that sense debt issuance is fundamental to funding and accelerating the transition.”
--With assistance from Selcuk Gokoluk.
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