Dubai: Saudi Arabia’s Public Investment Fund is set to cut back on lending to domestic projects, which has increased by more than 80 per cent over the past five years, as part of plans to transform the institution into the world’s largest sovereign wealth fund.
Loans by the PIF, as the fund is known, rose to 104 billion riyals ($27.5 billion; Dh101.7 billion) at the end of 2015, from 57 billion riyals at the end of 2011, according to information in Saudi Arabia’s sovereign bond prospectus. In the future, the PIF “will not act as a source of lending to the same extent that it has historically,” according to the document.
Saudi Arabia’s government plans to sell less than 5 per cent of the shares in national oil company Saudi Aramco to the public and transfer ownership of the rest of the company to the PIF. The shift will give PIF assets of more than $2 trillion (Dh7.34 trillion) and will technically make investments the main source of government revenue, not oil, Deputy Crown Prince Mohammad Bin Salman told Bloomberg in March. PIF made a $3.5 billion investment in ride-hailing company Uber Technologies Inc. in June.
PIF doesn’t receive any funding through the government budget and received more than 20 billion riyals in dividends, mostly from its holdings of Saudi Arabian equities, including stakes in Saudi Basic Industries Corp and National Commercial Bank, according to the prospectus. The fund had assets of 587 billion riyals as of June 30, up from 583 billion at the end of 2015.
Saudi capital spending to drop
Also, Saudi Arabia’s austerity measures will slash capital spending this year by 71 per cent, as the world’s biggest exporter of crude seeks to repair public finances damaged by low oil prices.
Capital expenditure is projected to reach 75.8 billion riyals ($20.6 billion) this year compared with 263.7 billion in 2015, according to the government’s bond prospectus obtained by Bloomberg. In 2014, capital spending amounted to 370 billion riyals.
The kingdom, with the largest budget shortfall among the world’s 20 biggest economies, has delayed payments to contractors and is weighing plans to cancel more than $20 billion of projects, according to people familiar with the plans. The government estimates that the budget deficit would decline to 13.5 per cent of gross domestic product this year from 15 per cent in 2015, according to the prospectus.
Economists expect the spending cuts to weigh on the largest Arab economy. Growth will likely slow to 0.6 per cent this year from 3.4 per cent in 2015, according to HSBC Holdings Plc.