Digital representation of the NEOM project The Line in Saudi Arabia
The line, NEOM
In Saudi Arabia's northwestern desert lies a sprawling construction site filled with cranes and piling equipment, surrounded by a recently built road. A pair of tracks cuts through the site like deep fissures in the sand, forming the backbone of what planners say will be a high-speed rail system.
The skeletal infrastructure forms the foundation of The Line, a billion-dollar, high-tech city that its architects say will eventually house nine million people between two 106-mile-long, 1,600-foot-tall glass skyscrapers.
The project, estimated to cost hundreds of billions, is just one of the hyperfuturistic venues planned for Neom, the brainchild of Saudi Crown Prince Mohammed bin Salman and a region that the kingdom hopes will bring in millions of new residents Saudi Arabia will bring Arabia and revolutionize life and technology in the country. It is a central pillar of Vision 2030, which aims to diversify the Saudi economy away from oil revenues and create new jobs and industries for its emerging young population.
The cost of Neom is estimated to be up to $1.5 trillion. In the years since its announcement, Saudi Arabia's Public Investment Fund, the giant sovereign wealth fund that now manages $925 billion in assets, has poured billions into foreign investments, with ever-larger waves of foreign investors flocking to the kingdom for cash procure.
This year, however, saw a significant change in spending direction, with a stated focus on maintaining investment at home and reports of cost cutting on mega-projects such as those in Neom. The changes come as the Saudi deficit grows and the outlook for oil demand and global oil prices see continued lows.
Construction work on The Line project in NEOM, Saudi Arabia, October 2024
Giles Pendleton, The Line at NEOM
This begs the question: Does Saudi Arabia have enough money to achieve its lofty goals? Or does it need to be more flexible in order to make its spending history sustainable?
A Gulf-based financier with years of experience in the kingdom told CNBC: “The PIF's widely recognized but now officially admitted focus on domestic investment suggests that a lot of money is still needed. Saudi Arabia has poured tens of billions into projects that have yet to show any indication of financial returns.”
The financier spoke on condition of anonymity because he was not authorized to speak to the press.
Andrew Leber, a researcher at Tulane University who focuses on the political economy of the Middle East, believes the current pace of spending will not last.
“The number of giga projects currently underway, where we pay in advance and hope for economic returns, is not sustainable,” said Leber.
“Nevertheless,” he added, “the Saudi monarchy has proven to be reasonably flexible as economic realities prevail. I think at some point a number of projects will be quietly put on hold in order to drive their tax spending back up to be more sustainable.”
Digital representation of the NEOM project The Line in Saudi Arabia
The line, NEOM
Saudi Arabia in October cut its growth forecasts and raised its budget deficit estimates for fiscal years 2024 to 2026 as the country anticipates a period of higher spending and lower forecast oil revenues. Real gross domestic product is expected to grow 0.8% this year, a dramatic decline from a previous estimate of 4.4%, according to the Treasury Department.
The kingdom's economy also swung dramatically from a budget surplus of $27.68 billion in 2022 to a deficit of $21.6 billion in 2023 as the country increased public spending due to its OPEC+ deal to cut supplies and oil production declined. The government forecasts a 2024 deficit of $21.1 billion, revenues of $312.5 billion and expenses of $333.5 billion.
Saudi authorities expect the budget to run into a deficit in the next few years as it implements its Vision 2030 plans, but add that they are fully prepared for this.
“Our non-oil revenues have increased significantly and now cover about 37% of expenses. “This is a significant diversification and gives you a lot of confidence that you can maneuver and be stable despite the fluctuations in oil prices,” Saudi Finance Minister Mohammed Al-Jadaan told CNBC in October. “Our goal is to ensure our plans are stable and predictable.”
“We will not bat an eyelash, we have significant budget resources and are very disciplined in our fiscal position,” the minister said.
Saudi Arabia has an A/A-1 credit rating with a positive outlook from S&P Global Ratings and an A+ rating with a stable outlook from Fitch. Combined with high foreign exchange reserves – $456.97 billion in September, up 4 percent from a year ago, according to the country's central bank – the kingdom is in a comfortable position to manage a deficit, economists told CNBC.
Riyadh has been successfully issuing bonds, tapping the debt markets for more than $35 billion so far this year. The kingdom has also launched a series of reforms to boost foreign investment and reduce risk and diversify revenue sources. According to S&P Global in September, this will “further improve Saudi Arabia’s economic resilience and prosperity.”
Asked whether the kingdom's spending trends were sustainable, Al-Jadaan replied: “Absolutely yes,” adding that the government recently published its figures for the next three years and that “we think they are very sustainable.”
Still, many analysts outside the kingdom, as well as individuals working within the kingdom and on NEOM projects, remain skeptical about the feasibility of the megaprojects. Reports that some projects have been drastically cut – in the case of the route, the size target was reduced from 106 miles to 1.5 miles and the population target was lowered from 1.5 million to less than 300,000 by 2030 – confirm this concern at a higher level.
Neom executives admit that the current phase of work on The Line calls for a building length of 1.5 miles – which would still make it the longest building in the world. However, the final goal of 106 miles has not changed, they say, emphasizing that cities are not built overnight and construction is progressing quickly.
For Tarik Solomon, chairman emeritus of the American Chamber of Commerce in Saudi Arabia, “it is promising to see transparency and some project cuts.”
“The kingdom’s rising external debt reflects challenges to the viability of Vision 2030,” he told CNBC.
“Although debt remains manageable at 26.5% of GDP, low burdens continue to accumulate, underscoring the need for fiscal discipline and achievable targets.”
Solomon noted the desire among many Saudi residents for improvements to the infrastructure they use in their daily lives, such as public transportation, network connectivity, schools and health care in Riyadh.
“Saudi Arabia’s path to resilience is not about finding ski slopes in the desert, but about building with innovation, complexity and the courage to pursue what is truly impactful,” he said.
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