PIF spending cuts slow giga-projects and trigger layoffs

• Saudi Arabia orders deep cuts
• 20% reduction in spending
• 50 development companies affected

Saudi Arabia’s $925 billion Public Investment Fund (PIF) has ordered deep spending cuts across more than 100 of its companies, slowing projects and triggering layoffs, people familiar with the matter have told AGBI.

The sovereign wealth fund at the heart of the government’s economic transformation strategy is mandating a minimum 20 percent reduction in 2025 spending across its portfolio, including at more than 50 development companies, sources said. 

PIF declined to comment when contacted by AGBI.

Some budgets have been cut by as much as 60 percent, sources said, as the government reprioritises projects. The cuts were approved at a PIF board meeting in December and are now being rolled out, the sources told AGBI this month.

Bloomberg reported in November that proposed cuts would be finalised at the board meeting.

Other project budgets have been frozen or cut entirely, the sources said. However, no project has yet actually been scrapped altogether.

“A scaling-down of domestic investment ambitions could help attract foreign investors if the revised projects become more realistic in the eyes of investors,” said Tim Callen, a visiting fellow at the Arab Gulf States Institute in Washington and a former IMF official.

“This would enable more limited finances to be focused on the most promising areas of development.”

PIF-backed companies, which also cover Saudi Arabia’s giga-projects, have asked contractors and consultants to slow or scale back work, the sources said. 

The giga-projects, of which there are at least five, typically encompass several “mega” projects, dramatically increasing complexity and duration. 

Valued at more than $1 trillion in total development costs, they lie at the core of the kingdom’s Vision 2030 strategy to diversify the economy away from oil and create more jobs for Saudi citizens.

“All previously announced projects will continue to be funded and no projects have been postponed,” PIF said in a statement in response to the Bloomberg story in November. “In fact, capital deployment is increasing. All projects through 2030 in line with Vision 2030 have sustainable funding plans.”

However, some giga-project contracts due to be awarded have been cancelled, the sources told AGBI.

A $5 billion contract at Neom, the futuristic city giga-project on the northwestern Red Sea coast – which was set to be awarded in December – was cancelled a day before a signing ceremony.

Saudi Arabia economy

Saudi Arabia had already scaled back targets for its $500 billion Neom project.

Neom is also at the centre of PIF’s dispute with PwC, which has led the sovereign wealth fund to suspend new advisory contracts with the professional services company for a year, Bloomberg reported earlier this month.

Neither PIF nor PwC have confirmed this. 

PIF –  which is chaired by Crown Prince Mohammed bin Salman Al Saud – and other government entities are reassessing their relationships with all international consulting firms as part of a broader reprioritisation, the sources said.

Of the giga-projects – including Roshn, Qiddiya, Diriyah, Red Sea Global and Neom – the final two have borne the brunt of the spending cuts, the sources said, because they are more ambitious, costly and slower to yield returns. 

The spending pullback is affecting jobs and supply chains. 

Some projects facing the steepest cuts are not renewing some employment contracts on expiration or even laying off staff, the sources said, declining to identify specific companies.

“If projects are slowed or shuttered altogether, it will undoubtedly affect employment,” Callen said.

“Companies elsewhere in the Gulf working on Saudi contracts will be affected with potential job losses.”

Nearly 2 million expatriates – both skilled and unskilled – have joined Saudi Arabia’s workforce in the past two years, according to official data.

Companies providing services to the giga-projects have felt the strain, with several reporting contract cancellations or capped scope since January. 

Some UAE-based public relations and communications agencies that were retained by the giga-projects have cut staff due to lost business, while others – facing delayed or partial payments over the last six months – may be forced to follow suit, the sources said.

Royal Commission for AlUla

Government and semi-government entities funded by the Ministry of Finance have also been directed to reduce expenditure by at least 20 percent for the year, the sources said.

Still, PIF told Bloomberg in November: “As PIF companies and projects mature and grow, they will have a growing range of funding options at their disposal, including private investment and capital markets.”

The cuts come as Saudi Arabia grapples with a widening fiscal deficit caused by a decline in the volume and value of its oil exports. World oil prices have also fallen this year to below $70 per barrel.

The kingdom has forecast a budget deficit of $27 billion for 2025 but that number could end the year bigger as oil prices decline, analysts have said. 

Saudi’s fiscal breakeven oil price is just over $90 per barrel, according to the International Monetary Fund.

With Opec+ production cuts limiting output and failing to halt a slide in global prices, the state’s revenue shortfall is mounting. 

PIF’s ability to sustain spending has been hit by national oil company Aramco’s decision to cut dividends by about $40 billion for 2025. 

The fund, which owns 16 percent of the national oil company, has $15 billion in cash reserves as of September, the lowest since 2020.

Nevertheless, budgets for projects tied to major global events such as the Fifa World Cup in 2034, the Asian Winter Games in 2029 and Expo 2030, have been protected, the sources said.

PIF is also courting private sector investors including at events such as FII Priority Summit in Miami in February as the kingdom seeks to attract $100 billion in annual foreign direct investment by 2030.