Financing Saudi Arabia’s Ambitious Reforms

The Saudi Public Investment Fund and government are on the lookout for new financing. The PIF has depleted its cash reserves and requires financing to continue with its ambitious investment programs, including at Neom. The central government needs to finance the fiscal deficits it is planning to run over the next three years. Three recent developments show a range of financing options are being used:

• The PIF has liquidated part of its U.S. equity portfolio. The publication of the PIF’s submission to the U.S. Securities and Exchange Commission (form 13-F filing) showed the value of its U.S. equity holdings declined to $20.6 billion at the end of the fourth quarter of 2023 from $35.2 billion at the end of the third quarter. While part of this decline was due to losses at Lucid Motors, the PIF closed previously held positions in over 20 companies. These sales could have raised nearly $14 billion that it can now reinvest elsewhere.
• The central government is issuing an international sukuk. This $5 billion dollar-denominated sukuk, or Islamic bond, is on top of the $12 billion in international bonds issued earlier in 2024.
• Renewed reports of the likely sale of Aramco equity. A second public sale of Aramco equity has long been expected, and media outlets are reporting such a sale on the Saudi equity market may occur as soon as June. Estimates of the size of the sale vary from $10 billion to $20 billion, with this ultimately likely to be determined by the interest of foreign investors in the deal. If the sale goes ahead, the proceeds are expected to find their way to the PIF.

Large Funding Needs Will Not Go Away

These developments demonstrate the financing flexibility that Saudi Arabia still has given its large asset holdings and low debt levels, but the question is for how much longer this can continue. Unless there is a scaling back of the ambitious investment projects being undertaken by the PIF and, to a lesser degree, the central government, financing needs will remain high. Previous estimates put the PIF’s capital needs through 2030 at $270 billion.

Without a sustained increase in oil revenue, it is likely that remaining pockets of liquidity in the economy, including at Aramco and the Saudi Central Bank, will have to be tapped to keep priority projects going. Recourse to further borrowing is also likely. With the PIF’s stated intention of having 20%-25% of its investment portfolio in international assets already in question given the recent U.S. equity sales, further foreign asset disposals seem unlikely at this time. Sales of the PIF’s equity positions in domestic listed companies, such as the Saudi National Bank and Saudi Telecom, will also become more difficult after an Aramco sale given the liquidity the latter would drain from the domestic investor base.

Higher oil revenue would of course be the best solution for Saudi Arabia, enabling projects to continue apace and financing strains to abate. Whether the oil market will cooperate remains to be seen.

The views represented herein are the author's or speaker's own and do not necessarily reflect the views of AGSI, its staff, or its board of directors.