Saudi Arabia has finalized a seven-year, $13 billion syndicated international loan to support energy, water, and public utilities projects, as part of the Kingdom’s strategy to diversify its sources of financing and manage public debt over the medium term.

But the more important question is not: Why is Saudi Arabia borrowing when it has substantial financial resources? It is: What will it do with this borrowing?

Debt is not inherently negative. The problem begins when it is used to finance spending that creates no future value. But when directed toward projects that raise productivity and expand the economy’s capacity, debt can become a tool for growth.

From Borrowing to Generating Returns

Energy, water, and utilities projects are not merely government expenditures; they are the basic infrastructure the economy needs to expand.

Industry cannot grow without reliable power, nor can cities and new projects expand without water and utilities. Modern investments, such as data centers and the digital economy, also require substantial infrastructure.

Therefore, investment in these sectors can create an impact that extends beyond the projects themselves by attracting private investment, raising productivity, and creating new economic opportunities.

This is where the equation Saudi Arabia is counting on comes into play: if the economic return on spending is higher than the cost of borrowing, debt can be an investment rather than a burden.

A Rising Deficit Does Not Tell the Whole Story

The loan comes at a time when Saudi Arabia’s public finances are running a budget deficit, but the figure alone is not enough to assess fiscal policy; what matters more is knowing where the spending is going.

If a significant portion of it goes toward projects and infrastructure that raise the economy’s productive capacity, the deficit should be assessed differently than one resulting from consumer spending.

That is why the Kingdom is focusing on spending efficiency: not necessarily reducing spending, but directing it toward areas that generate a greater economic impact.

South Korea’s Experience: When Financing Becomes Economic Capacity

South Korea offers an important example of this idea. During the decades of its economic transformation, South Korea invested in infrastructure, education, technology, and industry, helping it transition from a low-income economy to a high-income one.

The point is not that Saudi Arabia will replicate the Korean experience exactly, but that borrowing and investment become more logical when financing is transformed into productive infrastructure that strengthens the economy’s capacity to grow.

Ultimately, the success of the $13 billion loan will depend on what these funds produce in terms of new energy, water, infrastructure, investment, and productivity.

What matters is not how much you borrow, but what you build with what you borrow.