The Importance of Financial Analysis to Decision-Making for Financial Portfolio Diversification and Revenue Sustainability in Reducing Risk: The Case of Saudi Arabia's Public Investment Fund
DOI:
https://doi.org/10.56830/IJAMS04202604Keywords:
Financial Analysis, Decision-Making, Portfolio Diversification, Revenue Sustainability, Risk Reduction, Public Investment FundAbstract
This study examines whether structured financial analysis supports evidence-based capital allocation within Saudi Arabia's Public Investment Fund (PIF), and whether those decisions have produced measurable reductions in sovereign fiscal risk through portfolio diversification and non-oil revenue growth over 2015–2025. A quantitative approach is applied to an eleven-year time-series using five instruments: Compound Annual Growth Rate (CAGR), Pearson Correlation Coefficient, Herfindahl-Hirschman Index (HHI), Real Options Valuation (ROV), and Weighted Average Cost of Capital (WACC) modelling. Data were sourced from PIF Annual Reports, the Ministry of Finance, SAMA, and IMF Article IV Consultations. PIF recorded a CAGR of 22.2 percent in Assets Under Management (2015–
2024). The fiscal-oil correlation declined from r = 0.92 to r = 0.48, a 48 percent reduction in revenue concentration risk. Non-oil revenue rose from SAR 163.5 billion to a projected SAR 505.3 billion by 2025. HHI analysis nonetheless identifies a domestic concentration paradox that constrains full fiscal decoupling. Analytical capacity, rather than resource endowment alone, governs the pace of sovereign fiscal transformation. Financial analysis is the primary mechanism through which diversification decisions yield quantifiable risk reduction. Institutionalized correlation monitoring expanded Real Options analysis, ESG-aligned WACC optimization, and transparent risk-adjusted performance reporting are recommended for resource-dependent sovereign funds.
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