Saudi Arabia is maneuvering through significant changes as it positions itself at the heart of a new global order under the still-evolving leadership of Crown Prince Mohammed bin Salman. Once seen as the pariah among Western nations due to its controversial human rights record and the brutal killing of journalist Jamal Khashoggi, the kingdom has emerged as a central player on the world stage, especially after the war in Ukraine drove oil prices higher. A notable moment occurred during the July 2022 meeting between U.S. President Joe Biden and the Crown Prince, where they exchanged what some described as a diplomatic fist bump, representing the thawing of relations.
For the crown prince, this diplomatic reset was timely. The rising oil prices granted him leverage, allowing him to reshape Saudi Arabia's image and amplify its presence internationally. At the meeting with Biden, the American administration sought relief from soaring oil prices but was met with resistance. Mohammed bin Salman understood the necessity of maintaining strong oil revenues to support his strategic ambitions.
Since ascending to power, Mohammed bin Salman, often referred to by his initials MBS, has implemented daring reforms aimed at transforming Saudi Arabia's economy and diversifying it beyond oil dependency. Yet his reign is also marked by stark contrasts: extravagant spending on mega-projects, controversial military engagements like the war in Yemen, and bold initiatives such as Vision 2030, which aims to establish new economic avenues for the youth of Saudi Arabia.
One of the flagship projects under this vision is Neom, the proposed high-tech city situated in the northwestern part of the kingdom. The concepts for Neom include futuristic designs, sustainable living, and innovative urban planning, giving the impression of science fiction transforming become reality. With ambitious features such as The Line - meant to house nine million people across two towering glass skyscrapers running the length of 106 miles - the project embodies the Crown Prince's grand vision for the country's future, yet it raises eyebrows concerning feasibility and funding.
Despite aspirations, the sandals of reality pinch. The cost for constructing Neom has ballooned to as much as $1.5 trillion. This year, there have been marked shifts concerning financial strategies, with authorities indicating they will prioritize domestic investments and scale back spending on several mega-projects including those within Neom. Reports indicate attempts to reduce costs and cutback on extravagant designs have surfaced as the kingdom struggles with increased budget deficits and wavering oil prices.
With the Saudi economy experiencing its first budget deficit since 2019 - dipping from surplus to projected shortfalls of $21.6 billion for 2023 and similar figures moving forward - questions emerge about the sustainability of such expansive plans. Several analysts have expressed skepticism over how far the kingdom can stretch its finances to fuel its myriad mega-projects. Andrew Leber, a political economy researcher at Tulane University, has been vocal about the unsustainability of the current pace of investment, highlighting the likelihood of shelved projects as economic pressures mount.
Saudi Arabia has responded to declining revenues by seeking more innovative approaches to bolster non-oil income. Authorities report non-oil revenue now covers about 37% of expenditures, showing strides made toward diversification. Finance Minister Mohammed Al-Jadaan conveyed optimism, indicating the kingdom is capable of maneuvering through fiscal challenges, thanks to disciplined financial management and healthy reserves, stemming revenues from its massive Public Investment Fund.
Adjusting to economic realities, Saudi Arabia has become increasingly reliant on external borrowing to finance ambitious goals, and as of now, the kingdom is successfully issuing bonds, tapping the markets for over $35 billion this year alone. This strategy is seen as necessary to support both Neom and the broader Vision 2030 execution.
Despite the hurdles, there’s still widespread backing within the kingdom for MBS’s vision. The sense of enthusiasm about restructuring the economy shines through, with the government aiming for advancements not merely rooted within the oil sector. Observers highlight the public's desire for tangible improvements to infrastructure, such as healthcare, transport, and education, pressing for impacts felt concretely rather than fantastical constructions like ski resorts in the desert.
This ambitious new era for Saudi Arabia isn't without its challenges. The reduced targets for projects like The Line, which has seen reductions from housing 1.5 million people to possibly less than 300,000, speaks volumes about the volatility of these grand visions juxtaposed with the realities of finance. The shift denotes the need for pragmatism and viable project plans – preferences nudged by the public and external pressures.
Looking optimistically at what’s planned, the Crown Prince remains undeterred, assuring stakeholders of the kingdom's economic resilience. He emphasized sustainability and the fulfillment of strategic goals deftly, mirroring the cautious yet progressive stance of the kingdom.
With shifts not only economically but also politically, Saudi Arabia's place on the world stage appears to reset, ushering forth new alliances based on strategic commonality. How the kingdom weathers its fiscal fluctuations amid its audacious Vision 2030 goals will significantly shape its future as both regional and global players watch with vested interest.