Saudi “austere” budget outsources spending to PIF and leaves room for debt

RIYAD, Dec. 13 (Reuters) – Saudi Arabia will increasingly rely on its $ 450 billion sovereign wealth fund PIF to lead an ambitious spending push, keeping government books relatively clear while leaving the option open increase debt if necessary.

The world’s largest oil exporter said on Sunday that it plans to post its first budget surplus in nearly a decade next year by keeping a tight grip on public finances as revenues poured in, boosted by the rising crude prices. Read more

Among other measures, the budget forecasts an 18.2% drop in investment spending compared to this year’s forecast.

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Announcing the announcement, Finance Minister Mohammed al-Jadaan said: “If reserves are at adequate levels … the surplus will go to the National Development Fund to finance the private sector and to the PIF for investments.”

The Public Investment Fund (PIF) has become the centerpiece of Saudi economic diversification plans in recent years.

On Monday, the fund said it plans to invest up to R1 trillion by 2025.

The PIF previously announced its intention to invest 150 billion riyals per year by 2025, although it missed that target this year, investing only 84 billion riyals. Read more

If the full amount were disbursed next year, that would bring total spending to 1.15 billion riyals, an increase of almost 9% from this year’s estimate, said James Swanston, an economist at Capital Economics.

“At first glance, the 2022 budget looks pretty austere,” Swanston said.

“What is more interesting, however, is that the kingdom’s government seems to increasingly rely on government-related entities, notably the PIF, to support domestic investment in lieu of public spending.”


Jadaan said many large capital spending programs have been completed and spending efficiency has improved.

Other resources to support investment projects will come from planned privatizations and the participation of the PIF or the National Development Fund, a state entity responsible for facilitating private investment.

Created in 2017 by merging several smaller economic development funds, NDF had more than $ 80 billion in assets as of October, according to Global SWF, a sovereign wealth fund data specialist.

“In total, in fact, the numbers are higher than what we spent before, but the reach is much greater,” Jadaan said.

Saudi Arabia plans to keep its stock of public debt unchanged next year, with new issuance mainly used to refinance maturing debt rather than to support the budget.

New loans could be raised to support government reserves, depending on the budget, or to finance “investment projects that can be accelerated by debt issuance.”

Crown Prince Mohammed bin Salman said this year that state-owned companies will be required to cut dividends they pay to government to increase capital spending and support a multibillion-dollar spending campaign to diversify the economy .

But analysts said local investment targets – which include megaprojects like the futuristic $ 500 billion city NEOM – could be difficult to achieve. Read more

“We do not anticipate any new net (debt) issuance by the government for the foreseeable future and we expect more to be done at the level of public entities / enterprises as they advance their investment plans,” said said Mohamed Abu Basha, head of macroeconomic analysis at EFG Hermes.

The government is looking to create a consolidated balance sheet of its assets and liabilities that will include items currently kept on the books, including the investments and debts of the powerful sovereign wealth fund.

“I expect that in the next three to five years, we will receive the first consolidated balance sheet which will contain all sovereign assets and liabilities,” Jadaan told Reuters.

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Additional reporting by Aziz El Yaakoubi, written by Davide Barbuscia, edited by Catherine Evans

Our standards: Thomson Reuters Trust Principles.

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