Saudi’s economic transformation collides with war and falling FDI

The sharp pullback comes at a difficult time for the kingdom’s growth ambitions. Riyadh is targeting $100 billion in annual FDI by 2030 to help finance and accelerate the economic transformation envisaged under Vision 2030. In doing so, it hopes to reduce the fiscal burden on the government and its sovereign wealth fund, the PIF, while also increasing the size of the private sector and bringing jobs and expertise into the country. However, Saudi bank lending to state-owned companies increased 18.4% year-on-year in August—three times the 6% pace of private-sector credit growth. Amid a growing strain on its public finances, the Finance Ministry last week raised its estimated 2026 budget deficit to SAR245 billion (4.9% of GDP) from SAR165 billion (3.3%) in the original budget issued at the end of last year. This is due to spending exceeding the original budget rather than a reduction in aggregate revenue. In a report published on Tuesday, Moody’s noted how the recalibration of Vision 2030, announced in February this year, to focus on projects with the strongest returns and capital efficiency, will help reduce pressure on public finances. While high-profile mega-projects such as Neom are being restructured, the government is…