“They can say the same thing over and over again, and we can prove them wrong over and over again.
This was the response of Saudi Arabia‘s Crown Prince Mohammed bin Salman, who spoke about his skepticism towards the Saudis in a television documentary broadcast in July 2023.
Nearly a year later, some suspicions have turned out to be true.
In recent months, Saudi Arabia appears to have scaled back plans for the massive Neom desert development project, a core part of its Vision 2030.
This is an economic diversification program led by Crown Prince Mohammed, the de facto ruler of the Gulf state, to wean the country’s economy off its dependence on oil.
In addition to Neom, Saudi Arabia is also developing 13 other large-scale construction projects, or “gigaprojects,” as they are called, worth trillions of dollars. These include an entertainment city outside the capital Riyadh, several luxury island resorts in the Red Sea and many other tourist and cultural destinations.
But low oil prices have hit government revenues, forcing Riyadh to reassess these projects and seek new financing strategies.
A government adviser, the projects are under review and a decision is expected to be made soon.
“The decision will be based on a number of factors,” he says. “But there’s no doubt that a rebalancing will take place.” Some projects will go ahead as planned, others may experience delays or scale back.”
Announced in 2017, Neom is a $500bn (£394bn) plan to build 10 futuristic cities in the desert northwest of the country.
The most ambitious of these, and the one that grabbed all the headlines, is “The Line”. It is a linear city made up of two adjacent parallel skyscraper walls, each 500 metres high, taller than the Empire State Building. But together they are just 200 metres wide, including the distance between them.
The original plan was to be 170 km (105 miles) long and home to 9 million people.
But according to people familiar with the details, which have already been leaked to the press, project developers are focusing on completing just 2.4km by 2030 as part of the first module.
When The Line was first announced, it was touted as a “carbon-free linear city” that would redefine urban life, with amenities for residents such as parks, waterfalls, flying taxis and robot maids.
The city would have no roads or cars, and would be made up of interconnected pedestrian-friendly communities. It would also operate an ultra-fast rail service with journeys of up to 20 minutes around the city.
It is unclear how many of these features will be included in the first phase.
In addition to “The Line,” Neom will also include an octagonal floating industrial city and a ski resort that will host the Asian Winter Games in 2029.
Ali Shihabi, a former banker who now sits on Neom’s advisory board, says the goals set in the Vision 2030 project were deliberately “overambitious.”
“You have to be overambitious with the clear understanding that only parts will be implemented in time, but even those parts are important,” Shihabi says.
Neom’s downsizing has drawn attention to the financing problems facing the Saudi government.
Neom is funded by the Saudi government through the state-owned Public Investment Fund (PIF).
The official cost of building Neom is $500 billion, 50% more than the country’s entire federal budget this year. But analysts estimate that executing the entire project could ultimately cost more than $2 trillion.
Saudi Arabia’s state budget has been in the red since the end of 2022, when the world’s largest oil exporter began cutting production to boost global prices. The government expects a $21 billion deficit this year.
The PIF is feeling the impact. The firm manages about $900 billion in assets but had just $15 billion in cash on hand as of September.
Tim Cullen, a former Saudi Arabian IMF chief who is now a visiting professor at the Arab Gulf States Institute, said financing Neom and other major projects is a key challenge going forward.
“It’s becoming more and more difficult to provide the PIF with the budget it needs for these projects,” Cullen said.
Gulf states are exploring alternative avenues to raise funds.
Earlier this month, he sold about $11.2 billion worth of shares in state oil company Saudi Aramco. Most of those proceeds will go to the PIF, which was also the biggest beneficiary of the company’s 2019 listing.
The sale comes against the backdrop of volatile oil prices. Last July, OPEC+, a group of oil producers led by Saudi Arabia, cut production to support prices.
Riyadh voluntarily cut its supply by 1 million barrels per day. But OPEC+ reversed its decision this month and will begin gradually increasing production from October.
According to the International Monetary Fund, the price of a barrel of oil must be $96.20 for Saudi Arabia to balance its budget. Brent, one of the main benchmarks for crude oil, has been hovering around $80 a barrel.
The country also relies on selling government bonds to keep funds flowing to the PIF. Another challenge is that foreign direct investment remains well below targets, highlighting Riyadh’s difficulty in attracting funds from private companies and international investors.
“It will be very hard to convince investors to participate in projects that they consider too ambitious,” Cullen said. “It’s unclear where the revenue will ultimately come from.”
Gulf states are also pumping money into tourism, mining, entertainment and sports as part of a strategy to diversify their economies.
In recent years, Saudi Arabia has won the hosting rights to several major international events, including the 2027 Asian Cup, the 2029 Asian Winter Games and the 2030 World Expo, and it is also the sole bidder for the 2034 FIFA Men’s World Cup. Some of these projects will require huge investments in the coming years.
Shihabi expects the government to prioritize as these international events approach. “Projects that have to meet certain deadlines will naturally take priority,” he says.
In April, the country’s Finance Minister Mohammed Al-Jadaan told a special meeting of the World Economic Forum in Riyadh that the government had no “egos” and would adjust its Vision 2030 plans to transform the economy as needed.
“We will change course, extend some projects, scale back some projects and accelerate some projects,” he said.