Riyadh turns to foreign investors as debt climbs – Firstpost

Saudi Arabia’s ambitious economic transformation drive is running into a hard fiscal reality. Faced with mounting budget deficits, ballooning spending commitments and capital-strained domestic banks, Riyadh is stepping up efforts to attract foreign investors as its debt burden climbs to record levels.

The kingdom’s outstanding debt is set to cross $600 billion this year. The surge in borrowing reflects both lower-than-expected oil revenues and the enormous funding requirements of Crown Prince Mohammed bin Salman’s Vision 2030 — a sweeping plan to diversify the economy away from hydrocarbons and build new industries ranging from tourism to artificial intelligence.

Deficits widen, funding pressure builds

Saudi Arabia’s fiscal position has come under strain as oil prices remain volatile and below the levels needed to comfortably fund its mega-project pipeline. With multi-billion-dollar commitments to giga-projects such as NEOM, The Line, Red Sea tourism developments and large-scale infrastructure upgrades, government spending has continued apace even as revenues fluctuate.

The result: a widening budget deficit and growing reliance on debt markets. While the kingdom’s debt-to-GDP ratio remains moderate by global standards, the pace of borrowing has accelerated sharply in recent years.

At the same time, domestic banks — long the primary buyers of government debt — are facing tighter liquidity conditions. Heavy exposure to state-backed projects and corporate lending has constrained their balance sheets, limiting their ability to absorb additional sovereign issuance.

This combination of fiscal deficit and banking sector constraints has pushed Riyadh to look outward.

Opening the gates to global capital

In a major financial liberalisation move, Saudi Arabia has scrapped restrictions that previously barred most foreign investors from directly participating in its stock market. Effective February 1, the Capital Market Authority now allows any international investor, including individual traders, to buy shares directly on the Saudi Exchange (Tadawul).

The reform dismantles the Qualified Foreign Investor (QFI) framework, which had limited direct access to large institutions managing at least $500 million in assets. Non-qualifying investors were earlier forced to gain exposure through complex swap arrangements.

By eliminating the QFI regime, Riyadh is seeking to transform a market long dominated by domestic retail investors into a deeper, more globally integrated financial hub. Foreign ownership of Saudi equities stood at just over 4.7% at the end of last year—lower than in comparable emerging markets.

The timing is notable. Saudi equities have struggled to keep pace with global peers, falling nearly 13% in dollar terms in 2025 and sharply underperforming the broader emerging markets index. Policymakers see greater foreign participation as key to boosting liquidity, improving valuations and reviving investor sentiment.

Some market estimates suggest that easing access rules could attract between $10 billion and $15 billion in fresh inflows in the near term, offering a welcome cushion as the government ramps up borrowing.

IPO pipeline and strategic stakes

The kingdom is also easing restrictions on who can buy shares in Tadawul-listed companies to support a growing IPO pipeline. With several state-linked and private firms expected to tap capital markets, broader foreign participation could help ensure successful listings and stronger pricing.

Authorities have retained certain guardrails, including a 49% aggregate foreign ownership cap for listed companies and a 10% limit for individual nonresident investors. However, officials have signalled that further liberalisation — potentially including majority foreign ownership in select sectors — could be considered in the future.

As oil revenues fluctuate and mega-project bills come due, the kingdom’s ability to sustain Vision 2030 may increasingly hinge on how successfully it can tap international investors — and how willing those investors are to buy into its long-term promise.