When they decided to create funds to save part of their oil export earnings, Gulf Arab countries perhaps did not expect these burgeoning windfalls to rocket to that level.

Two of their sovereign wealth funds (SWFs) have just surpassed the trillion-dollar mark while a third one has reached the final loop in the race to break that mark.

At more than $3.5 trillion, the assets of four SWFs in Saudi Arabia, the UAE, Kuwait and Qatar could be worth 10-year oil revenues at the current prices and crude export rate. But how such a windfall has swelled so fast against changing oil production and persistent storms in the global financial markets?

 “I consider the Gulf wealth funds as great stories of success and determination...they started from scratch and now look at what they have achieved,” said Mohammed Al-Asumi, a Dubai-based economic adviser.

“Over the past few years, their assets have grown fast mainly because of relatively strong oil prices...but the most important factor is that these SWFs are managed well...it is the good asset management which tells the real story,” he told Zawya Projects.

In mid-2020, the combined financial assets of the SWFs in those four Gulf nations stood at around $1.977 trillion, according to figures gathered by ZP from previous reports by the US-based SWF Institute.

The assets surged to around $2.49 trillion in September 2022 and about $2.907 trillion at the end of 2023. They are now estimated at around $3.537 trillion, an increase of nearly $1.56 trillion in 4.5 years.

ADIA surges

A breakdown showed the assets of the Abu Dhabi Investment Authority (ADIA), the largest SWF in the six-nation Gulf Cooperation Council (GCC), leaped from about $697 billion in mid-2020 to $1057 trillion at present.

Those of the Kuwait Investment Authority (KIA) soared from around $592 billion to $1.029 trillion while the assets of the Saudi Public Investment Fund (PIF) nearly tripled from around $360 billion to $925 billion in the same period.

The Qatar Investment Authority (QIA) also saw its assets swelling from around $328

billion to $526 billion, the SWF Institute report showed. The figures showed these funds are now among the world’s 10 largest SWFs and account for nearly a quarter of the total global SWF assets of $13.7 trillion.

High earnings

“The GCC SWFs are generating large sums of money....so I believe they will continue to grow because their policy is to strictly avert withdrawing from those funds to finance the budget deficit or other needs,” said Ihsan Buhlaiga, a Saudi economist and former member of the Shura (appointed parliament).

“As for the PIF, it has set a target to reach $one trillion and I am sure it will reach it in the near future...don’t forget that the PIF is concentrating on maximising return and several affiliated companies will soon start achieving revenues as their goal is not only to develop the infrastructure...the PIF has a clear and definite strategy for supporting the national economy and increasing overseas investments...I don’t think it will deviate from this strategy which is vital for the country,” Buhlaiga told Zawya Projects.

He noted that Saudi Arabia has persistently shunned withdrawing from PIF reserves and instead resorted to borrowing from the local and foreign markets to fund its fiscal deficits. As a result, the Saudi public debt has steadily grown over the past few years. Sitting atop the world’s second largest recoverable oil resources, Saudi Arabia has suffered from budget deficits in most years in the past decade, with the exception of 2022, when crude prices shot above $100.

Saudi borrowing

Annual borrowing caused its public debt to swell from around SAR 854 billion ($227.7 billion) at the end of 2020 to SAR 1,216 billion ($324.2 billion) at the end of 2024, according to the Riyadh-based Jadwa investment and consultancy firm, which expects the debt to climb to SAR1,343 billion ($358 billion) at the end of 2025.

Kuwait has also suffered from budget deficits in the past five years but it did not resort to SWF withdrawals. Local newspapers, however, said the government was forced to withdraw nearly 7.5 billion dinars ($24.7 billion) from the Future Generation Fund to cover a large budget deficit during 2021-2022.

Kuwait is also planning to revive its defunct debt law after an eight-year gap to borrow nearly $66 billion over the next 20 years to support its budget.

The UAE and Qatar are different as their budgets have recorded surpluses in most years in the past decade, allowing them to largely replenish their SWFs and stave off borrowing large funds.

UAE surplus

Figures by the Abu Dhabi-based Arab Monetary Fund showed the UAE budget basked under a massive cumulative fiscal surplus of nearly $102.7 billion during 2021-2023 while the surplus in Qatar’s budget stood at around $38 billion during the same period.

In 2024, the UAE was expected by Fitch ratings agency to record another surplus of 4.1 percent of GDP while Qatar’s budget registered a surplus of about $1.6 billion, according to the Qatari Finance Ministry.

The Singapore-based Global SWF said in a report last year that the Gulf SWF assets under management, including those of Abu Dhabi Mubadala Development company and other GCC members, are projected to swell to $7.6 trillion in 2030 as regional states intensified a drive to diversify their economies.

“SWFs have become a key source of income for the GCC countries, a strong fiscal cushion and the backbone of their economies along with oil....it all started as a dream and it has almost been fulfilled,” Asumi said.

(Reporting by Nadim Kawach; Editing by Anoop Menon)

(anoop.menon@lseg.com)

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