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Riyadh looks to adjust investment approach

11 September 2025

 

Yasir Al-Rumayyan, governor of Saudi Arabia’s Public Investment Fund (PIF), is preparing to set out a new investment approach for the $1tn sovereign wealth fund he runs, telling an event in Washington on 8 September that “in the coming two months or so, we will set the new strategy for the PIF”.

It will be a significant moment given the scale of the fund’s investments in the Saudi economy, which were worth some SR2.8tn ($747bn) at the end of last year.

Al-Rumayyan described it as “a continuation from the original strategy”, but, as yet, has not provided any further details. The fact that the state-owned fund is planning to change or evolve could, however, be taken as an implicit acknowledgement that all is not going as planned for the government’s efforts to remodel the economy.

There have been a number of other recent signs of trouble, not least for the PIF and the other stalwart of the economy, Saudi Aramco.

The PIF’s recent annual report for 2024 showed a 19% rise in assets under management to SR3.4tn, but the fund also cut the valuation of its gigaprojects by 12%, amid well-documented problems at some of its key projects.

On 5 August, Aramco meanwhile reported a 14% year-on-year fall in net profits for the first half of 2025 to $48.7bn, amid a 15% drop in average oil prices. Despite that, its dividend payments crept up by 4%, while its debts increased by 25% to $3bn. 

Seen together, such developments point to some wider problems with the government’s Vision 2030 diversification strategy, launched in 2016. In recent years, the PIF has been steadily increasing its domestic investments – in large part because international investors have not been putting money into the Saudi economy at anywhere near the rate hoped. Changing that trend is a critical test for Riyadh, but is also more difficult to pull off at a time of lower oil prices.

There have been a lot of changes in the business environment in a short period of time and it can take a bit of time to bed down and for people to get comfortable with that
Toby Iles, Jadwa Investment

The Ministry of Investment reported on 3 September that inward foreign direct investment (FDI) had grown by 24% last year to reach SR119bn ($31.7bn), but that is still a long way short of the annual target of $100bn by 2030.

Amine Mati, the IMF’s mission chief for Saudi Arabia, said at an event hosted by the Arab Gulf States Institute in Washington on 4 September that “FDI is coming, it's still not the numbers that we would like to see”.

The reforms brought in over recent years may yet help to turn this around, but it is taking longer than some in Riyadh might hope.

“There have been a lot of changes in the business environment in a short period of time and it can take a bit of time to bed down and for people to get comfortable with that,” said Toby Iles, chief economist at Riyadh-based Jadwa Investment.

“I think it's important to reserve a bit of judgement on the FDI numbers for now and, of course, to remember that that 2030 target is both very high and also the target for 2030, not for now.”

Grounds for optimism

There are nevertheless various more positive signs in the market. Inflation appears to be contained at around 2%, home ownership levels are rising and unemployment is at a record low, with youth and female unemployment rates halving over the past four years.

Overall, the Saudi economy – like those of the rest of the GCC – has so far avoided being too badly affected by regional instability or the global trade tensions prompted by US President Donald Trump’s tariffs.

This can be seen in the continued growth in non-oil activity. According to the latest IMF report on the Saudi economy, released in early August, non-oil GDP grew by 4.5% last year, driven by the retail, hospitality and construction sectors. Public and private sector investments in transport systems, supply chains and new industries from tourism to electric vehicles are helping to underpin economic activity.

Opec+ production cuts caused a 4.4% decline in oil GDP last year and left overall growth at around 2%, but the voluntary cuts have been unwound and Saudi crude output is now rising. Mati pointed out that a 1 million b/d increase in production can offset a $10 drop in oil prices: “People always talk about oil price, but forget to talk about oil production.”

The IMF’s short-term forecast is for GDP to grow by 3.6% this year and 3.9% in 2026, helped by robust domestic demand, including government-led projects, and higher oil production. Others are predicting slightly higher numbers. Naif Alghaith, chief economist at Riyad Bank, said: “We expect maybe it's a bit higher: maybe just slightly shy of 5%.”

Economic activity is being supported by fairly robust public spending, which has not dipped in the way it has in previous periods of lower oil prices. The IMF expects the budget deficit to be around 4% of GDP this year, but Mati said “there’s no need to cut spending to get back to the deficit target”, with the reforms and adjustments already made likely being enough to stabilise the situation without further action, he said.

Project spending is significantly down this year, but Dubai-based bank Emirates NBD has said spending on projects will remain a key driver of Saudi Arabia's economic growth. The country has around $443bn-worth of projects under execution, according to MEED Projects – with the majority of them in the power, construction and gas sectors, not in the PIF’s troubled gigaprojects portfolio. The country has a further $208bn-worth of project work in the prequalification and bidding phases and due for imminent award.

For all the efforts to encourage more private sector, non-oil activity, the main factors that will govern the trajectory of the economy in the coming years remain oil prices and government spending.

“The government's pretty mindful of striking this balance between pushing the economic transformation agenda and maintaining strong fiscal external metrics,” said Iles.

“I think the speed of travel for the economy is a function of how that pans out, and obviously, the oil market is part of the determinant of where the speedometer ends up.”

MEED’s October 2025 special report on Saudi Arabia also includes:

> BANKING: New funding sources solve Saudi liquidity challenge
> GAS: Saudi Arabia and Kuwait accelerate Dorra gas field development
> CONSTRUCTION: Saudi construction pivots from gigaprojects to events
> TRANSPORT: Infrastructure takes centre stage in Saudi strategy

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Dominic Dudley

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