CNBC reported that the construction of Neom in Saudi Arabia’s vast desert northwestern is well underway. Neom is a futuristic city development which was envisioned to be a key component of Vision 2030.
The Line, a $1.5 trillion project that aims to build two glass skyscrapers parallel and 106 miles long with the goal of housing 9 million people in them, represents a pinnacle for this $1.50 trillion undertaking.
The massive project is part of Saudi Arabia’s effort to decrease its dependence on oil. It’s complemented by hyper-modern initiatives that aim to transform the Kingdom into a center for sustainability, innovation and tourism.
The recent shifts in priorities for spending and the economic challenge are raising doubts about these ambitious plans.
Neom’s size and costs reshape Saudi expenditure
The estimated cost of Neom has reached $1.5 trillion. This makes it the largest and most ambitious development in the world.
The project, which is largely funded by the Public Investment Fund of Saudi Arabia (PIF), a fund that manages assets worth $925 billion dollars, plays a key role in diversifying the economy of the Kingdom.
The recent economic pressures including the growing deficit and decreasing oil revenue have led to a review of priorities.
The Saudi economy will shift from having a budget surplus of $27.68billion to a deficit of $21.6billion in 2023.
The government expects a $21.1 billion deficit in 2024. Revenues are projected at $312.5 and expenses at $333.5.
The strain on the public finances, despite the fact that the deficit can be managed due to the $456.97 Billion in foreign reserves and the A+ rating of the credit rating is apparent.
The Line was originally envisioned to be a linear city of 106 miles, but is currently under construction in a phase that has been significantly reduced, measuring only 1.5 miles.
Neom’s executives maintain that their ultimate goal is unchanged, but this change reflects an incremental approach in managing costs and delivering results.
The Line’s population goal has been reduced from 1.5 millions by 2030 down to less than 300,000 people in the short term.
Priority is given to domestic investments
Saudi Arabia will shift its focus in 2023 from large overseas investments towards domestic projects.
This pivot is a response to the urgent need for financial return on the billions of dollars already invested in ambitious projects like Neom.
A Gulf financier noted the PIF’s focus on domestic spending highlights the need for continued expenditure for Vision 2030.
It is the challenge of the kingdom to balance immediate fiscal pressures and long-term transformations promised by these project.
Vision 2030: Economic reality tests the goals
Saudi Arabia’s Vision 2030 seeks to diversify the economy and reduce dependence on oil revenue.
Yet sustained low oil price and reduced production in accordance with OPEC+ has hindered revenue growth.
The real GDP growth forecasts for 2023 were slashed by 0.8% from 4,4%.
Mohammed Al-Jadaan, the Finance Minister, remains optimistic about the Kingdom’s fiscal stability, despite these difficulties, pointing out that 37% of all government spending is now derived from non-oil revenue.
Source: CNBC
Saudi Arabia’s Central Bank reports that the Saudi Government has issued more than $35 billion of bonds in this year. The government is using its high credit rating, and reserves, to control deficits, while continuing to invest in Vision 2030.
Balance ambition and pragmatism
Researchers at Tulane University and others have warned that Neom, as well as other mega-projects, may not be able to continue in the current state.
Depending on the fiscal situation, some initiatives will be reduced or delayed.
Flexibility in adapting the kingdom to changing economic conditions, and its willingness to change project scopes suggest a pragmatic strategy to navigate these challenges.
Neom’s journey is a perfect example of this balance act.
Although the initial phase focuses on tangible results, there are still questions about whether such a vision is feasible.
Many Saudis may be more interested in practical infrastructure improvements, health care, and educational programs than future urban design.
Saudi Arabia is able to overcome current problems due to its economic resilience, strategic reforms and ability.
Reforms have improved economic resilience, and increased investor confidence.
Neom’s success depends on the ability of its team to achieve measurable results while maintaining fiscal discipline.
A nation that wants to reinvent its image in the world and strengthen its economic base must balance bold goals with realistic milestones.
The post Saudi Arabia’s Neom: Can it sustain its $1.5T spending spree? This post Can Saudi Arabia’s $1.5T Neom sustain its spending spree? appeared first on ICD
This site is for entertainment only. Click here to read more
