Saudi Arabia has approved an ambitious 217.5 billion riyal ($58 billion) borrowing plan through 2026, marking a significant shift in the kingdom’s fiscal strategy as it navigates volatile oil markets and an expensive economic diversification agenda. Finance Minister Mohammed Al-Jadaan authorized the plan earlier this week, according to documents released by the Saudi Ministry of Finance, setting a course for the kingdom’s medium-term debt management that balances development needs against fiscal sustainability.
The borrowing plan represents a carefully calibrated approach to funding Crown Prince Mohammed bin Salman’s Vision 2030 initiatives while maintaining the kingdom’s sovereign credit rating. According to the Saudi Press Agency, the borrowing will be executed through a combination of domestic sukuk issuances, international bonds, and alternative financing instruments, designed to optimize the kingdom’s debt profile.
Market analysts view this development through the lens of Saudi Arabia’s broader economic transformation. “This borrowing strategy signals confidence in the kingdom’s economic trajectory despite oil price volatility,” noted Khatija Haque, chief economist at Emirates NBD. “They’re essentially leveraging their strong credit position to fund the massive infrastructure and diversification projects critical to Vision 2030.”
The announcement comes amid a challenging global context. Oil prices have struggled to maintain stability above $80 per barrel, with Brent crude hovering around $75-77 in recent trading sessions. For Saudi Arabia, whose budget breakeven oil price remains above $80 according to IMF estimates, this creates particular fiscal pressures that the borrowing plan aims to address.
Saudi officials have emphasized that the borrowing plan aligns with the kingdom’s debt ceiling of 50% of GDP, established under fiscal reforms implemented in recent years. The Ministry of Finance projects the debt-to-GDP ratio will reach approximately 26.2% by the end of 2024, leaving substantial headroom under the ceiling while maintaining fiscal discipline.
The borrowing strategy emerges against the backdrop of significant capital expenditures required for megaprojects like NEOM, the futuristic $500 billion city under construction in the kingdom’s northwest. These projects, while promising long-term economic diversification, demand substantial near-term funding that exceeds current oil revenue capabilities.
Saudi Arabia’s Public Investment Fund (PIF), the kingdom’s sovereign wealth fund with assets of approximately $700 billion, continues its aggressive investment strategy both domestically and internationally. However, the scale of planned developments necessitates additional financing beyond PIF’s current deployment capacity.
Fahad al-Turki, chairman of the Saudi Fiscal Sustainability Program, indicated that approximately 65% of the borrowing would target domestic markets, with the remainder sourced internationally. “This balanced approach helps develop our local debt markets while benefiting from attractive international financing conditions,” al-Turki explained during a media briefing in Riyadh.
International investors and credit rating agencies have responded cautiously but positively to the announcement. Monica Malik, chief economist at Abu Dhabi Commercial Bank, told the Financial Times that “Saudi Arabia maintains substantial financial buffers and relatively low debt levels compared to similarly-rated sovereigns, providing credibility to this medium-term borrowing strategy.”
The kingdom’s debt management strategy has evolved considerably since 2015, when plunging oil prices forced Saudi Arabia to tap international debt markets after years of minimal borrowing. The subsequent development of sophisticated debt issuance capabilities has transformed Saudi Arabia into one of the region’s most significant sovereign borrowers.
Domestic sukuk issuances have proven particularly successful in recent years, helping develop Saudi Arabia’s capital markets while providing local institutions with sharia-compliant investment vehicles. The Ministry of Finance reported oversubscription for most recent domestic issuances, reflecting strong local market confidence.
Economists at JPMorgan Chase estimate that Saudi Arabia needs to invest at least $1 trillion through 2030 to achieve its economic diversification targets and reduce oil dependency. The approved borrowing plan covers only a portion of this funding requirement, suggesting further financing strategies may emerge in coming years.
Despite ambitious spending plans, Saudi officials maintain they remain committed to achieving fiscal balance in the medium term. The 2024 budget projects a modest deficit of 2% of GDP, with gradual reductions planned through 2026, according to Finance Ministry projections released alongside the borrowing announcement.
For global debt markets, Saudi Arabia’s borrowing plan represents a significant opportunity. Investment banks have already begun positioning for roles in upcoming international issuances, with significant demand expected from institutional investors seeking exposure to the kingdom’s economic transformation story.
As Saudi Arabia executes this borrowing strategy, market observers will closely monitor its impact on the kingdom’s sovereign risk profile and broader economic indicators. The success of this financing approach may ultimately determine the pace and scale of Saudi Arabia’s ambitious economic diversification agenda in an era of persistent oil market uncertainty.
