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HomeLatest NewsSaudi Arabia admits shortsightedness in its 'Vision 2030' and postpones million-dollar projects

Saudi Arabia admits shortsightedness in its ‘Vision 2030’ and postpones million-dollar projects

Date: February 25, 2024 Time: 10:17:27

Saudi Arabia has postponed beyond 2030 some of the projects launched as part of its economic transformation plan, in the first admission that the kingdom is having to change the timeline to reach the goals of the multi-trillion-dollar program.

The government, which forecasts budget deficits every year until 2026, has decided on the extension to build capacity and avoid huge inflationary pressures and supply bottlenecks, Finance Minister Mohammed Al Jadaan said on Thursday. He did not specify which projects would be affected.

A longer period is needed to “build factories, build sufficient human resources. Delaying or rather extending some projects will serve the economy.” After determining how much borrowing was acceptable to the government, the timeline of some projects was revised, Al Jadaan explained in a meeting with the press this week.

All planes were reviewed based on “economic, social, employment and quality of life performance, among other factors, over the past 18 months,” the government’s economic chief said. As a result, some are “being fast-tracked and some, mostly projects in the pipeline that have not yet been announced, have a longer execution timeframe,” he noted.

“There are strategies that have been postponed and there are strategies that will be funded after 2030,” Al Jadaan noted. The process of reviewing project timelines is being led by a committee chaired by Crown Prince Mohammed Bin Salman.

Vision 2030, Saudi Arabia agenda

Dubbed Vision 2030, Prince Mohammed’s sweeping initiative launched with great fanfare in 2016 aims to diversify the oil-dependent economy and attract foreign investment. The government has long highlighted progress in areas ranging from tourism and manufacturing to digitalization and the integration of women into the labor market.

But the costs are piling up for an economy that still relies heavily on energy to provide most of the government’s revenue. Following the first budget surplus in nearly a decade last year, the kingdom rewrote its medium-term fiscal plans and shifted to forecasting deficits in coming years while accelerating spending.

“They better be doing this now and adjusting in an orderly way, so I think it’s a sign of administrative maturity,” says Steffen Hertog, associate professor at the London School of Economics and Political Science. “It is fiscally positive, especially in the context of relatively lower current oil revenues. There are also inevitable logistical bottlenecks that would inevitably delay some projects,” he adds.

The International Monetary Fund (IMF) predicted in October that Saudi Arabia would need crude oil close to $86 per barrel to balance its budget, a higher price than its average this year. If spending by government-related entities like the Saudi sovereign wealth fund is included, the breakeven point will likely rise to $110 in the second half of this year, according to Bloomberg Economics.

Al Jadaan warned that meeting the planes “in a short period of time” would threaten to stoke inflation and put pressure on Saudi Arabia to import more from abroad to raise the necessary resources. “Some projects can be extended for three years, so 2033, some will be extended until 2035, some even beyond that and some will be rationalized,” he predicted.

Saudi Arabia has projected oil and non-oil revenues through 2030, along with how much spending will be needed to deliver the announced planes, Al Jadaan said. “So we identified the gap and looked at how we were going to fill it and the gap is filled primarily with debt,” he predicted.

Figures presented by the Ministry of Finance this week show that it expects public debt to reach almost 26% of Saudi Arabia’s GDP by the end of 2024, a comparatively low level by global standards, but an increase of more than a percentage point from from this year.

Reaching a threshold above the government’s planned debt levels can be dangerous, Al Jadaan said. Authorities are seeking financing abroad to avoid displacing the private sector or competing with Saudi consumers and smaller businesses for access to financing, the Saudi finance chief said.

The Riyadh government is also reviewing spending plans and looking for ways to cut budgets when necessary. This year alone, around 225 billion rials ($60 billion) have been saved and repurposed to implement projects, programs and other strategies, according to Al Jadaan. “Optimizing spending is not just about reducing spending. It is about how best to use resources to achieve optimal returns,” he concludes.

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Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.

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