In yet another sign of Saudi Arabia’s increasing reliance on debt to finance its ambitious yet unsustainable projects, the Saudi Electricity Company has announced the issuance of $2.75 billion in international sukuk, divided into two tranches:
- First tranche: $1.5 billion for 5 years with an annual yield of 5.225%.
- Second (green) tranche: $1.25 billion for 10 years with an annual yield of 5.489%.
While the Saudi government is presenting this move as an economic success, the reality is far more alarming. This growing dependence on debt financing highlights the regime’s financial instability, as borrowing has become a permanent strategy to fund projects that have yet to generate tangible returns. Instead of fostering genuine economic growth, Saudi Arabia is increasingly using loans as a short-term fix to keep its economic ambitions afloat.
Mounting Debt and Its High Costs
In recent years, debt has become a central pillar of Saudi economic policy under Mohammed bin Salman, raising serious concerns about long-term sustainability.
- The Rising Cost of Borrowing: The high yields on these sukuk indicate the increasing cost of financing for Saudi companies, which could negatively impact the company’s profitability and its ability to fund future projects.
- A Risky Strategy: Continued reliance on borrowing increases Saudi Arabia’s financial burdens and makes the kingdom vulnerable to external economic pressures and global market fluctuations.
As interest rates rise globally, the cost of servicing these debts will only increase, further straining Saudi finances. This approach exposes the regime’s failure to develop a self-sustaining economy, leaving it dependent on constant borrowing to keep its ambitious yet underperforming projects alive.
The Failure of Vision 2030 and the Debt Trap
This sukuk issuance comes at a time when Saudi Arabia is struggling to fulfill its Vision 2030 goals. Despite repeated claims of economic diversification, the kingdom remains heavily dependent on debt-financed projects that have yet to yield substantial returns.
- Failed Megaprojects: High-profile initiatives such as NEOM and The Line continue to face severe financing shortfalls and construction delays. Instead of attracting sustainable investment, Saudi Arabia is using borrowed funds to patch financial gaps in these overambitious ventures.
- Declining Foreign Investment: The kingdom’s failure to attract major international investors has forced it to resort to borrowing under increasingly expensive terms, worsening its financial outlook.
These failures reveal a fundamental flaw in Vision 2030: rather than creating an economy that can generate revenue independently, Saudi Arabia is accumulating debt at an alarming rate without securing sustainable income sources to repay it.
Is Saudi Arabia Headed Toward a Debt Crisis?
With the government continuing to take on new debt to finance projects that have yet to prove their profitability, concerns are mounting over whether Saudi Arabia is heading toward a financial crisis.
- Soaring Financial Commitments: The latest sukuk issuance adds to an already growing pile of debt, increasing the risk of financial instability in the future.
- Unproductive Economy: Despite grand promises of economic diversification, oil remains the primary revenue source, while borrowed funds are funneled into projects that fail to generate sustainable income.
Saudi Arabia’s issuance of $2.75 billion in international sukuk is not a sign of economic strength—it is yet another indicator of the regime’s dangerous addiction to borrowing. Instead of building a strong and independent economy, the kingdom is relying on short-term financial patches that only mask deeper economic vulnerabilities.
This is not sustainable growth; it is a temporary fix to an escalating financial crisis. As the kingdom’s debt burden continues to rise, its economic future becomes increasingly fragile—raising the question: How long before Saudi Arabia finds itself trapped in a full-scale debt crisis?
