14 minutes ago
DUBAI – Reuters: Saudi Arabia wants to decipher its financial situation, as it is working on drawing up a unified list of its financial position that includes assets, liabilities and items that are not now on the books of its oil-rich economy, including the assets and debts of the sovereign Public Investment Fund.
A spokesman for the Ministry of Finance said in an interview, “The main purpose of this program is to find a fee for examining the general financial position of the government with magnetic resonance,” adding that it would include assets and liabilities that are not now on the list.
The Saudi Crown Prince, Prince Mohammed bin Salman, who is effectively managing the country’s affairs, has placed the Public Investment Fund, the country’s main sovereign wealth base, at the forefront of reforms aimed at diversifying the economic resources of the world’s first countries in terms of oil exports.
Under the prince’s presidency, the image of the Public Investment Fund was transformed from a dormant sovereign wealth fund to a global investment tool that wagered billions of dollars on advanced technology companies, such as Uber Technologies, as well as injects investments in the shares of other companies, and pledged tens of billions of dollars to funds managed by Softbank Japanese.
The fund does not publish its financial statements nor does its investments appear in the country’s announced budget.
Gulf states do not usually publish information on their total debt and assets. However, investment decisions that involve more risks on the part of the “Public Investment Fund” and the injection of state funds into it, all this made the ambiguity surrounding it a matter of concern to some investors.
“Wealth transfers from liquid asset systems such as central bank reserves to less liquid (and less transparent) investments in the Public Investment Fund increase the overall risk profile of the public financial position,” said Kirjanes Christens, a director in the sovereign wealth team at Fitch Ratings.
“Investors in debt (lenders) tend to see one risk at their core for both the government and the main associated entities, such as the Public Investment Fund,” he added. Thus, increasing the debt ratio in the wider Saudi system may at some point affect the government’s borrowing costs.
The Saudi government communications center did not respond to a request for comment.
In the second half of last year, the government began work on creating a system to manage sovereign assets and liabilities. A spokesman for the Ministry of Finance stated that it is a long-term project, and that no decision has been issued yet regarding when and how to disclose its results. He said, “If we use the standard criteria, we will see that countries spent two years implementing the merger stage.”
It is noteworthy that the Public Investment Fund has a huge financial position. Its assets have swelled to $ 400 billion in 2020 from 150 billion in 2015. The fund also supports its expected $ 70 billion from Saudi Aramco, the oil giant in the country, in return for the fund’s share in the petrochemical industry giant, the Saudi Basic Industries Corporation (SABIC). »And on transfers of $ 40 billion from the central bank’s external reserves.
The fund also received nearly $ 30 billion, representing the proceeds of the initial public offering of a stake in Aramco shares in 2019.
The fund also raised loans of $ 21 billion in 2018 and 2019. Sources said that it is currently working on completing a new credit facility with a volume of more than ten billion dollars.
Despite the oil wealth that Saudi Arabia possesses, creating sufficient job opportunities for its youth is one of the biggest challenges facing Prince Mohammed.
Since 2016, the government has been implementing economic policies aimed at creating millions of jobs and reducing the unemployment rate to seven percent by 2030.
However, the economic austerity practiced by the government in order to contain the growing deficit in its budgets led to a slowdown in the pace of investment. And the Coronavirus crisis pushed the unemployment rate last year to a record high of 15.4 percent.
Riyadh cut investment spending last year to reduce the budget deficit from its massive 12 percent of GDP to just 4.9 percent at the end of this year.
Instead, it relies on the “Public Investment Fund” to finance some of the major infrastructure projects to help support growth, including the “Neom District” project, which has investments of $ 500 billion.
And recently, it announced the “The Line” project, which is an environmentally friendly million-dollar city that relies on artificial intelligence applications “in the Neom region. Its investments are expected to range between 100 billion and 200 billion dollars.
Prince Mohammed says that the Public Investment Fund plans to pump at least 150 billion riyals ($ 40 billion) annually into the local economy until 2025, and increase its assets to four trillion riyals ($ 1.07 trillion) by that year.
Commenting on transfers from state funds to the Public Investment Fund, Khaled Abdel Majeed, fund manager for the Middle East and North Africa at Sam Capital Partners, a London-based investment advisory firm, said: “Prince Mohammed understands that unless the economy grows at a rate higher than 6.5 to seven percent, the unemployment rate among the youth will remain the same and may worsen, and that is a time bomb.
“Accomplishing tasks in the normal way through regular channels will take longer than is available,” he added.