The kingdom is slashing spending on Vision 2030 and other megaprojects while increasing defense expenditures amid the ongoing Iran war
News Desk - The Cradle
Riyadh made the decision after the eruption of the war on 28 February, which saw Iran effectively close Hormuz to US- and Israeli-linked vessels, threatening Saudi oil exports and revenues, according to executives at consultancies.
The executives added that Saudi Arabia is seeking to curb state spending and investment that had skyrocketed in recent years to fund Crown Prince Mohammed bin Salman’s (MbS) ambitious Vision 2030 program.
The program included the construction of a futuristic city, Neom, which was projected to cost up to $8.8 trillion, as part of an effort to diversify the kingdom’s economy and revenues beyond oil.
Neom and other Saudi projects comprising Vision 2030 have served as a “veritable gold mine” for major US consulting and accounting firms, such as McKinsey and Boston Consulting Group, FT noted.
“They haven’t put it out formally, but everyone knows, and everyone is operating on this basis. They are saying we are not paying you any time soon, until July,” one executive said.
“They are also saying that they are not giving any new awards – the ministers and buyers have been told no new awards are being approved by the Ministry of Finance, unless you have special preapproval,” the executive added.
A second executive said the approval of any new contracts and payments of invoices had been postponed until the end of June.
“It’s a symbolic gesture for them to show they’re being prudent in the current circumstances,” the executive explained. “We’re quite relaxed about it as it doesn’t affect ongoing work.”
In response to the report, the Saudi Finance Ministry issued a statement saying the kingdom looks to “ensure all investments, including consultancy services, provide clear returns in line with the strategic objectives of Vision 2030.”
The ministry denied delaying payments for existing contracts, saying “99.5 percent” of invoices had been “paid within the contractual timeframe” so far this year.
Executives said Saudi officials wish to reduce costs on Vision 2030 projects to divert more to defense spending and to expand its infrastructure on the Red Sea.
In response to the closure of Hormuz, Saudi Arabia has redirected much of the oil it produces to ports on the Red Sea for export via its recently expanded East–West Pipeline.
Though exports have fallen, higher oil prices caused Saudi revenue from crude exports to jump to a more than three-year high of $24.7 billion in March, the first month of the war, Bloomberg reported on Thursday.
The value of Saudi crude and oil-product exports increased 37 percent in March from the prior year, according to the General Authority for Statistics.
Regarding the cutback in consultancy spending, one senior executive told FT, “It’s a continuation of a slowdown and reprioritization that’s been happening for a while, but the war has brought it into sharper focus.”
Another said the kingdom is using the conflict as “a convenient way for them to downsize” the megaprojects that were overblown and were costing too much.
Despite higher oil revenues, the Finance Ministry’s quarterly budget showed the deficit widened to $33.5 billion in the first quarter, the highest level since 2018.
The increased budget deficit resulted from defense spending, which rose 26 percent, as well as cash-flow lag and government spending to mitigate the impact of the Iran war, according to the ministry.
In response to the war, Saudi Arabia has sought to develop a new defense pact involving Turkiye and Pakistan, two cash-strapped nations with powerful militaries that have benefited from Saudi financial largesse.
Last week, reports emerged that the kingdom had also “floated” the idea of a “non-aggression pact” between Iran and neighboring states, modeled on the 1975 Helsinki Accords.
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