Saudi Arabia, known for its ambitious development projects, has been forced to cut its budget for the futuristic NEOM Bay development project by 20%. The decision comes amid multi-billion dollar cuts to some of the kingdom's biggest development projects. NEOM Airlines, a planned state-owned airline that was to start operations in NEOM Bay, could be significantly affected by these cuts.
According to a report by Bloomberg, a government committee headed by Crown Prince Mohammed Bin Salman has almost completed a comprehensive review of these mega projects. The cuts affect not only NEOM Bay, but also other major projects such as the Qiddiya Coast tourism and entertainment project in Jeddah, whose budget was initially estimated at $50 billion.
The reasons for this decision are varied. Falling oil prices, weaker than expected foreign investment and a forecast of another three years of budget deficit are forcing Saudi Arabia to re-order its priorities as part of Vision 2030. This vision, initiated by Crown Prince Mohammed Bin Salman, aims to diversify the Saudi economy and make it less dependent on oil.
NEOM Airlines: A project in limbo
NEOM Airlines, originally planned to begin operations in late 2024 or the first quarter of 2025, was to serve as Saudi Arabia's third state-owned airline. The project aimed to connect the emerging NEOM Bay location with key global and regional destinations. The airline would operate in close cooperation with NEOM stakeholders and complement, not compete with, the existing state-owned airlines Saudia and Riyadh Air.
However, the budget cuts cast a shadow over the planned start of operations of NEOM Airlines. Without the necessary financial resources, the preparations and launch of the airline could be delayed or even stopped completely.
Financial challenges and measures
To ensure financial stability, NEOM secured a new revolving credit facility of 10 billion Saudi riyals (approximately US$2,67 billion) from nine Saudi Arabian financial institutions in April. This short-term financing is intended to help drive development despite the now announced budget cuts.
The decision to cut budgets reflects the challenges Saudi Arabia faces amid global economic uncertainties and internal financial difficulties. While Vision 2030 remains the long-term goal, short-term adjustments must be made to ensure economic stability.
Reactions and future prospects
The announcement of the budget cuts has attracted attention both within Saudi Arabia and internationally. Experts and observers see the decision as a necessary adjustment to current economic realities. Implementing Vision 2030 requires significant investment, and the government must ensure that the funds are used efficiently and in a targeted manner.
Despite the cuts, interest in NEOM and the other development projects remains high. NEOM, which is planned as a futuristic city, is intended to be a center for technology, innovation and sustainable development. Even though budgets have been cut, the long-term goal of establishing NEOM as a global model for urban development remains.
The budget cuts for the NEOM projects and the uncertain future of NEOM Airlines are a sign of the challenges Saudi Arabia faces in implementing its Vision 2030. It remains to be seen how these cuts will impact long-term development plans and what measures will be taken to achieve the Kingdom's ambitious goals. The government's next steps and the reactions of international investors and partners will be crucial in determining how the projects move forward and whether Saudi Arabia can achieve its vision of a diversified and sustainable economy.
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