Saudi Arabia’s Mega Projects Threaten State Bankruptcy

The Neom project, among other mega initiatives, seriously threatens the bankruptcy of the Kingdom, yet creative methods for accumulating debt off Riyadh’s balance sheets continue to be overlooked.

The futuristic city of Neom, constructed in the country’s northwestern border region, is the Kingdom’s most extravagant and unusual mega project. It is attempting a restart after last year’s funding and other challenges jeopardized key elements of Neom.

Nadhmi Al-Nasr, a veteran of Aramco who has been in charge since 2018, was ousted following months of negative headlines starting with reports in March stating that Neom’s flagship project, The Line—a linear city measuring 170 kilometers long, 500 meters high, and 200 meters wide—would open in 2030, just less than 5 kilometers away.

Further reports surfaced about a toxic work environment, substantial salaries for senior foreign nationals, and the deaths of hundreds, if not thousands, of workers during the project’s construction—even though the work had not yet gone beyond laying the foundations, with low oil prices creating a gap in the project’s timeline.

Al-Nasr was a suitable scapegoat, but his replacement, the head of local real estate at Neom, Ayman Al-Mudaifer, is tasked with convincing global investors, particularly Chinese bankers whom Neom’s parent company, the Public Investment Fund (PIF), has tried to attract, that The Line project is moving forward.

The Line is not the only project in Neom. There is a series of 12 ultra-luxurious resorts along the Gulf of Aqaba in the early stages of construction. Each bears a fantastical scientific name, such as “Zainour,” “Zardon,” and “Serana,” but collectively marketed as “Magna.” Global architects have been paid to design them.

Among other features that fall within the scope of tradition and nature is the Sandala Tourist Island, set to start welcoming tourists next year, and the OXAGON industrial city focused on modern industries like green hydrogen, and the Trojina Mountain Resort, scheduled to host the 2029 Asian Winter Games.

However, The Line is increasingly seen as the flagship project of the broader “Vision 2030” plan to transform what was, a decade ago, a very closed and conservative society into a playground for the new class of tech moguls and other global wealthy elites.

It’s notable that the governor of the Public Investment Fund, Yasser Al-Rumayyan, was recently seen speaking with the newly elected U.S. President Donald Trump and Elon Musk at a UFC event in New York the other day.

As news of Neom’s new CEO spread, leaders of The Line took the stage to lecture at a carefully arranged forum at a real estate exhibition in Riyadh on November 12th.

They came to sell what they described as a pioneering city with a population of nine million for the future human community, but it seemed like a dystopian vision of life confined within a massive glass box in a world unfit for habitation.

The idea of building a city along this green corridor dates back to Crown Prince Mohammed bin Salman himself—with the world’s top architects, like Peter Cook, whose firm Cook Hafner Architects is leading the design, happy to proceed with this vision.

According to Tariq Al-Qudumi, the executive director of The Line’s design, the city will solve modern life problems. He said, “We’ve all suffered from traffic congestion, pollution, and isolation in today’s cities, which are getting wider, while they were supposed to bring people together. What we’ve done now is just expand urban sprawl. So, you have to put the old model aside and return to first principles.”

Ian Mulcahey, the chief strategy officer of urban design at the American architectural firm Gensler, recently appointed, spoke about the project as a milestone in human creativity.

He added during the forum, “It’s about the scale of collaboration—top engineers, designers, and landscape architects in the world, all coming together like a NASA project to achieve the nearly impossible.”

The city’s planners are closely studying human behavior models and incorporating them into the building design, which from the outside looks like a massive rectangular mirror reflecting the surrounding sand and mountains.

Among the key questions posed: Who will live there? Neom has marketed its ideal new community as a place for foreigners, noting that it would operate under a different set of laws than the rest of the country, including regular alcohol sales.

But there are signs of the government’s sensitivity to public concerns about Neom and other mega projects’ foreign-facing and the government’s ambition to inundate the country with tourists and foreign businessmen.

Recently, British and Indian CEOs were replaced by Saudi executives at the Roshan housing company and the King Abdullah Financial Center. In a surprising turn, luxury apartments at the Trojina Winter Resort are now being offered to Saudis.

Hani Al-Harbi, a residential sales consultant at the forum, said, “Many Saudis have second homes in Dubai, London, and other places, but now we have something to boast about and can offer to Saudi families, it’s more their product.”

In February, King Salman issued a decree requiring ministers to wear black robes with golden edges at official events, and another decree in April ordered all government employees to adhere to the traditional white thobe and head cover.

A closer look at the information available from the Public Investment Fund shows that the organization is bleeding money the state cannot afford.

Regarding public financial management and the risk of state bankruptcy due to a herd of white elephants, a closer look at the available information from the Public Investment Fund shows that the institution is bleeding money the state cannot afford.

The financial statement of the Public Investment Fund for 2023 showed that staff costs—covering salaries and benefits—increased by a staggering 40% in 2023 to SAR 59.9 billion ($15.9 billion).

Although the statement was audited by KPMG, it did not clarify whether the figure includes all employees at the fund’s 168 affiliated companies or the 2,553 employees working in its four global offices. If the latter number is correct, this means an average annual salary of $6.2 million, which is reasonable for senior executives.

The gap of $212 billion between the assets of the Public Investment Fund and the assets owned could also mean massive spending on fixed assets like luxury office buildings in New York, London, and Singapore.

Currently, Saudi Arabia is handling the situation on an ad hoc basis. With foreign cash reserves standing at $411 billion in September, the government is still able to support the Riyal’s peg to the dollar and avoid instability that could make people want more say in the government.

The debt, which reached 28.3% of GDP this year, remains within the range of global averages, and Western credit rating agencies still give it high marks while the ongoing $1.25 trillion development plan makes Saudi Arabia a party city for financiers, consultants, builders, and designers.

The government turns a blind eye to hasty and creative ways of accumulating debt without it appearing on the general balance sheet, such as Aramco borrowing money to ensure huge dividend payouts to shareholders like the Public Investment Fund, which owns 16% of the state-owned energy giant.

The elephant in the room is always oil prices, which, though not having collapsed, are already proving disappointing for the Saudi leadership, trading at less than $80 per barrel, far below the $96 per barrel currently set by the International Monetary Fund as the breakeven price.

With major events on the horizon, such as the Asian Winter Games, the 2030 International Expo in Riyadh, and the 2034 FIFA World Cup, Saudi Arabia will avoid real scrutiny from foreign financial backers and its people for at least another decade.