Analysis: How rich is Saudi Arabia? Kingdom does the math in balance sheet overhaul


DUBAI —  Saudi Arabia needs to demystify its funds.

The kingdom is engaged on making a consolidated balance sheet of its belongings and liabilities which is able to embrace objects at present saved off the oil-rich financial system’s books, together with the investments and money owed of its highly effective sovereign wealth fund.

“The main purpose of this program is to have a financial equivalent of an MRI of the government balance sheet,” a Finance Ministry spokesman advised Reuters, including that it might embrace belongings and liabilities which are at present “off-balance sheet”.

Saudi Arabia’s Crown Prince and de facto ruler Mohammed bin Salman has put Public Investment Fund (PIF), Saudi Arabia’s essential sovereign wealth fund, at the centre of reforms geared toward diversifying the financial system of the world’s high oil exporter away from fossil gasoline.

Under the prince’s chairmanship, PIF has remodeled from a sleepy sovereign wealth fund into a worldwide funding automobile making multi-billion greenback bets on hi-tech corporations corresponding to Uber in addition to different fairness investments and pledging tens of billions of {dollars} to funds run by Japan’s Softbank.

Its monetary statements should not revealed and it does not function in the kingdom’s finances, which is publicly accessible.

Gulf international locations don’t usually publish details about their general money owed and belongings however the PIF’s riskier funding profile and infusion of state funding have made its opacity a problem for some buyers.

“Transfers of wealth from liquid pools of assets like central bank reserves into PIF’s less liquid (and less transparent) investments increases the overall risk profile of the public sector balance sheet,” mentioned Kirjanis Krustins, a director in Fitch’s sovereign workforce.

“Debt investors would tend to see the government and its key government related entities such as PIF as representing substantially the same risk. Thus the levering up of the broader Saudi complex could at some point impact the government’s own borrowing costs,” he mentioned.

The authorities media workplace didn’t reply to a request for remark.

Aramco billions

The authorities began working in the second half of final yr on the so-called Sovereign Asset and Liability Management (SALM) framework and the spokesman mentioned it was a ‘long-term project’ with no choice but made on when and the way its outcomes can be disclosed.

“If we use benchmarks we will see countries spent a couple of years to implement the consolidation phase,” he mentioned of the undertaking.

The PIF’s funds are formidable.

Its belongings have swelled to $400 billion as of 2020 from $150 billion in 2015, with the fund bolstered by an anticipated $70 billion payday from Saudi Aramco, the state oil firm, for PIF’s stake in a petrochemical big and a $40 billion switch from the central financial institution’s international reserves.

It was additionally the recipient of practically $30 billion in proceeds from Aramco’s preliminary public providing in 2019.

The fund has raised $21 billion in loans between 2018 and 2019, and is finalizing a brand new facility anticipated to be over $10 billion in measurement, sources have mentioned.

The ‘normal’ method

Despite Saudi’s oil wealth, creating sufficient jobs for the kingdom’s younger inhabitants is one in every of the greatest challenges going through Prince Mohammed, identified in the West as MbS.

The authorities has been pushing by financial insurance policies since 2016 aiming to create thousands and thousands of jobs and cut back unemployment to 7% by 2030. But fiscal austerity to comprise a yawning deficit has slowed funding, and the coronavirus disaster final yr pushed unemployment as much as a report 15.4%.

To get the deficit down from an eye-watering 12% of GDP final yr to a shortfall of 4.9% by the finish of this yr, Riyadh has slashed capital spending.

It is relying as a substitute on the PIF to fund a few of the main infrastructure tasks to assist increase progress, together with NEOM, a $500 billion high-tech enterprise zone, and the just lately introduced “The Line”, a 1 million inhabitants carbon-free metropolis in NEOM, anticipated to price between $100 billion and $200 billion.

PIF plans to inject not less than 150 billion riyals ($40 billion) yearly into the native financial system till 2025, and to extend its belongings to 4 trillion riyals ($1.07 trillion) by that date, Prince Mohammed has mentioned.

“MBS understands that unless the economy grows at a rate above 6.5-7%, the youth unemployment rate will stagnate or grow – and that is a ticking time bomb,” mentioned Khaled Abdel Majeed, MENA fund supervisor at London-based SAM Capital Partners, an funding advisory agency, commenting about transfers of state funds to PIF.

“Doing things the ‘normal’ way through ‘normal’ channels will take more time than is available.”

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