(Bloomberg) -- Saudi Arabia’s sovereign wealth fund is preparing to cut budgets for some local projects for a second year even as it increases overall spending, reflecting the kingdom’s shifting priorities in a trillion-dollar plan to overhaul the economy.
The Public Investment Fund has asked some portfolio companies to cut their proposed budgets for next year by as much as 20% while some other developments may be accelerated, according to people familiar with the matter, who asked not to be identified discussing private information. The PIF is also reviewing budgets for projects yet to be announced, the people said.
Spending plans for 2025 are due to be presented next month to the fund’s board, when final decisions on its total outlays and budgets for individual projects are expected to be made, the people said. Some PIF projects are looking to raise external financing to compensate for any budget cuts, the people said.
“All previously announced projects will continue to be funded, and no projects have been postponed,” the PIF said in a statement. “In fact, capital deployment is increasing” and “as PIF companies and projects mature and grow, they will have a growing range of funding options at their disposal, including private investment and capital markets.”
The PIF, chaired by Crown Prince Mohammed bin Salman, is the main entity tasked with driving the Vision 2030 initiative that aims to diversify the country away from oil. The potential cutbacks on certain projects mark an ongoing shift in priorities for Saudi Arabia, which has been grappling with lower oil prices at a time when foreign direct investment has been slow to materialize in some sectors.
The wealth fund’s need to re-evaluate spending plans by some of its portfolio companies has become particularly acute after the kingdom won rights to host a series of global events, including the 2027 AFC Asian Cup, the 2029 Asian Winter Games and the 2030 World Expo. Saudi Arabia is also the only bidder for the 2034 FIFA World Cup, and much of the development to host these events is being led by the PIF.
Those marquee tournaments will require extensive construction, leading to the need to re-think the pace and scale of certain projects, according to people familiar with the matter. Some of the recalibration is also being done to avoid overheating in the economy, Finance Minister Mohammed Al-Jadaan, who is also a PIF board member, has said.
“The Saudi economy has reached a stage where oil market volatility doesn’t impact it as much as it used to,” he said Tuesday after the kingdom outlined plans to trim spending in 2025.
Cuts to the budget of developments such as Neom come under the auspices of the PIF rather than the government, Al-Jadaan said. “There is not a single project under Vision 2030 that doesn’t have the right funding,” he said.
Any decision by the PIF to adjust spending or slow the pace of some developments can have consequences for the firms involved. At least one foreign contractor had to dismiss a significant number of workers at Neom this year as some ambitions were scaled back.
Saudi Arabia is expected to post budget deficits through at least 2027. It needs crude at $98.40 a barrel to balance government revenues with spending, according to the International Monetary Fund, while Bloomberg Economics puts the breakeven at $106 once domestic spending by the PIF is taken into account. Brent crude is trading at about $73 and Saudi Arabia is restraining production as part of its agreement with OPEC+.
To address those gaps, the kingdom and the PIF have raised billions from debt sales. That’s led to an increase in Saudi Arabia’s debt-to-GDP ratio, which Moody’s expects to reach 35% by 2030 — still considerably lower than many countries.
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Saudi officials began publicly saying that some spending plans would be delayed about a year ago, though they haven’t disclosed which projects could be impacted. At the same time, they’ve said some developments will be accelerated.
“Although the government embarked on a fiscal space exercise that led to a recalibration and re-prioritization of projects, we expect its capital expenditure and domestic investments by the Public Investment Fund to remain relatively high over the coming years,” Moody’s Investors Service said in a report this month.
The ratings agency recently upgraded the kingdom for the first time since initially assessing it in 2016, driven by continued progress in economic diversification and a better outlook for the non-oil sector. That pocket of the economy is expected to register 4-5% annual growth, according to government and analysts’ estimates.
Projects including the historic mud city of Diriyah and the entertainment hub of Qiddiya remain top priorities, people familiar with the matter said. King Salman International Airport, another mega project, plans to start construction on one runway before the end of the year.
New Murabba — expected to eventually feature a cube-shaped skyscraper big enough to fit 20 Empire State Buildings — is among projects potentially facing cuts, according to a person familiar with the matter. Neom, the highest profile development under the crown prince’s plan, already had its budget cut by about 20% this year, Bloomberg News has reported.
Representatives for New Murabba didn’t respond to a request for comment. Neom declined to comment.
The IMF said in June that a “recalibration” of spending to reduce “overheating risks and maintaining fiscal and external sustainability” was welcome, but urged greater transparency about what had been affected.
--With assistance from Abeer Abu Omar.
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