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In Saudi Arabia, the Public Investment Fund (PIF), the sovereign fund financed by oil revenues with which the Saudi state finances enormous and pompous development plans, has been running out of liquidity, i.e. immediately spendable money, for a few months. This is pushing the Saudi government to look for new ways to find them.
The fund has been used in recent years for very ambitious projects, such as the – rather controversial – one of building a hyper-futuristic city in the desert between Saudi Arabia, Egypt and Jordan, and enormous buildings cube shaped in the capital Riyadh. With the money from the fund, Saudi Arabia has purchased various sports teams around the world, hosted major international events, and so on.
The fund said recently that its cash levels had fallen to around $15 billion in September, the lowest level since December 2020, when it began publishing data. To keep the projects active, Saudi Arabia therefore needs money immediately and according to Wall Street Journal it would be experimenting with some methods that it had stayed away from in recent decades: loans and the sale of part of the shareholding that the PIF holds in the large state oil company, Saudi Aramco.
This is quite exceptional, because the Saudi fund is among the richest in the world: it is worth a total of 700 billion dollars in investments, and is the sixth in the world. It is also the most active sovereign fund globally, i.e. the one that carries out the most extraordinary operations: according to the data company Global SWF In 2023, the PIF spent $32 billion on 49 acquisitions and other deals, a third more than the previous year, making it the fastest-spending fund in the world.
Among its objectives is the financing of “Vision 2030”, the broad and controversial reform plan presented by Saudi Crown Prince Mohammed bin Salman with the aim of leading to the diversification of the economy by 2030, so that the country’s development and growth no longer depend only on the proceeds of the oil industry. To do so, it plans to accumulate over one trillion dollars in investments by 2025 and at least double that by 2030, thus becoming the largest sovereign fund in the world, surpassing the Norwegian onewhich manages more than $1.4 trillion in investments.
But in the face of these increasingly expensive expansion plans – with also major ethical and human rights problems – oil revenues, the country’s main source of financing, have remained stable. According to estimates by the International Monetary Fund, in 2023 the price of oil should have been above 86 dollars a barrel to balance the government’s budget: instead it averaged around 81 dollars.
To fill the gap, at the beginning of January Saudi Arabia surprisingly issued 12 billion dollars in government bonds, i.e. the typical financial instruments with which states borrow money on the financial markets. A few weeks later, PIF separately sold $5 billion in bonds, again to raise money.
Another way to raise money is to sell shares of state oil company Saudi Aramco. According to Wall Street Journal The Saudi sovereign wealth fund reportedly plans to sell 1 percent of the state oil company, which could bring in around $20 billion. The sovereign wealth fund owns 8 percent.
All this also adds to theexceptional slowdown of the Saudi economy, which occurred despite the enormous public spending to support the economy: from the 8.7 percent growth in 2022 compared to the previous year, in 2023 the Saudi Gross Domestic Product grew by only 0.8 percent hundred.
– Read also: What is the “Saudi sovereign wealth fund”