US President Donald Trump’s hopes of securing as much as $1 trillion in investment commitments from Saudi Arabia might clash with another costly ambition - transforming the kingdom’s own economy.Saudi Crown Prince Mohammed bin Salman’s plans to diversify the oil-dependent country are likely to cost close to $2 trillion, according to estimates compiled by Bloomberg News. The sheer scale of domestic commitments — calculated by Bloomberg based on interviews with people familiar with the plans, US government projections, Saudi estimates and data from the researcher MEED — are transforming the kingdom’s role in the global economy.Decades of earning more money than it spent at home once left Saudi Arabia with huge surpluses to invest abroad. High domestic spending and falling oil prices have now sent that into reverse. The petrodollar spigot is still churning out vast amounts of cash, but transforming the Saudi economy is a costly endeavor.Giant investment plans — most notably a futuristic new city called Neom that could cost over $1.5 trillion if completed, according to US State Department estimates and people familiar with the construction — have pushed the country into a widening deficit. Neom had been projected to cost $500 billion when it was unveiled in 2017. The Gulf nation has also committed to hosting several global events requiring large scale investments, including the World Expo 2030, the FIFA World Cup in 2034 and the AFC Asian Cup in 2027. Meanwhile, its Trojena project — part of Neom — is expected to add 30 kilometers of ski slopes for the 2029 Asian Winter Olympics. The costs for the preparation and hosting of these events could run into hundreds of billions of dollars, although specific numbers aren’t available because the government doesn’t provide details, two economists surveyed by Bloomberg News said. 121130030All these outlays will limit how much MBS can afford to hand to Trump, who arrives in Riyadh on May 13. Already, the kingdom has scaled back ambitions on parts of Neom. The kingdom’s $940 billion Public Investment Fund is also cutting budgets on many projects and ramping up borrowing to keep up with spending commitments. While debt levels are currently low, they are at risk of steadily increasing. “Trump is chasing $1 trillion of investments, but Saudi Arabia can’t deliver it,” said Ziad Daoud, chief emerging markets economist at Bloomberg Economics, pointing to the kingdom's current account balance turning negative over the past year. “Saudi Arabia has become an importer of capital even with oil prices at relatively high levels, and it’s likely to remain until at least 2030. That’s going to reshape its relationship with the global economy.” 121130066Even if Saudi Arabia throws out big headline investment numbers during the visit and unveils a string of business partnership, much of the money may not trickle into the US economy any time soon. “$1 trillion of new trade and investment over the next four years is not going to happen,” said Tim Callen, a visiting scholar at the Arab Gulf States Institute in Washington. “It would represent a huge increase on recent levels and would basically represent all the assets of the PIF and close to a full year of GDP.” MBS — as the kingdom’s defacto ruler is called — has already helped Trump secure lower gasoline prices at home by boosting crude production. That’s in contrast to when President Joe Biden visited, leaving Saudi Arabia empty-handed after meeting the crown prince to plead for help tackling soaring inflation.But that alone won’t be enough to win favor with a president known for a transactional approach to foreign policy. The business community of Saudi Arabia has been fielding calls from government ministries scrambling for information on what trade and investments firms are planning to do with the US over the next few years, according to people familiar with the matter. Large contracts related to the development of MBS’s economic transformation plan look likely to be handed to US firms.How much of all of this was going to happen anyway will be moot. It will help hand Trump attention-grabbing numbers, just as he's trying to convince Americans that his worldwide tariffs are good for the US economy and will boost their job prospects. Regardless of who is in the White House, Saudi Arabia needs to buy US goods and services to protect its borders and meet its ambitions to become a hub for things like artificial intelligence, global logistics, tourism, and finance.Still, getting that number up to $1 trillion could be tough. The Saudi government could try to stretch out any pledge to a decade or more, said Rachel Ziemba, adjunct senior fellow at the Center for a New American Security. “Overall, I think there will be more announcements and desire to work together - economically, in energy and AI and in terms of investment - rather than real concrete steps,” she said. “Both Saudi Arabia and the US are probably comfortable being a bit vague on the details and finding a combination of purchase agreements, proposed investment and some areas of reduced trade barriers.”Saudi government representatives didn’t respond to request for comment for this story. 121130088So far, MBS has promised Trump $600 billion in extra investment and trade with the US over the next four years. Yet, crude prices at around $63 a barrel put fresh pressure on the kingdom. Bloomberg Economics estimates that Saudi Arabia needs a price of $96 a barrel to balance its budget, and $113 if domestic spending by the PIF on MBS's projects is included.“Any external demands will only add pressure to an already stretched position,” Monica Malik, chief economist at Abu Dhabi Commercial Bank PJSC, said.To be sure, the Saudi government and the PIF have already started delaying some domestic investment plans and could delay them further or scale back some of its most ambitious plans. That would give them more room to spend in the short term. 121130102But the country’s stretched finances have started to show up in the rising pace of Saudi debt issuance. The government borrowed the most on record in the first quarter, even more than in the depths of 2020 when oil prices turned briefly negative.Still, Saudi Arabia’s total debt stands at $354 billion, only around 30% of gross domestic product and low by the standards of most other governments. It has over $400 billion of foreign reserves parked with the central bank and a large portion of that is US treasuries. “The current account will be in deficit in the coming years, meaning there will be no new money to invest overseas,” Callen said. “So they will either have to borrow or sell existing investments to finance new investments in the US or elsewhere.”
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