Saudi Arabia’s deputy crown prince has privately outlined plans to reshape the economy to withstand low oil prices, sources said, in what could be the biggest policy shake-up since the kingdom’s economy was last hurt by cheap oil more than a decade ago.
The strategy was presented by Mohammed bin Salman at a meeting this week with senior officials, businessmen and economists. It includes state spending reforms and privatisations in the world’s top oil exporting country, the two sources said.
The plans, expected to be made public in the next few weeks, represent a shift of authority over economic policy to Mohammed bin Salman, the council of economic and development affairs, which he chairs, and the ministry of economy and planning, the sources added. The sources, from the private financial and business sectors, declined to be named because of political sensitivities.
Officials have been talking about some of the reforms discussed at the meeting for years, but they have been blocked by political opposition, bureaucratic inertia and technical challenges.
Under previous administrations, institutions such as the ministry of finance dominated policy, but they have been partially sidelined as pressure on the economy has grown because oil prices have dropped.
The government has been running an annual budget deficit of more than $100 billion (€92 billion), forcing it to liquidate more than $90 billion of foreign assets in the past 12 months to pay its bills – a pattern that is not sustainable for more than a few years, the International Monetary Fund has warned.
More cautious
Under the reforms described by Mohammed bin Salman, the government would become more cautious about spending.
The ministry of finance would fund new projects only with the approval of the economic council, a powerful new body created by the deputy crown prince’s father when he ascended the throne in January, and decisions would be closely tied to the government’s financial situation, the sources said.
Some state bodies would be privatised to try to spur growth, create jobs and cut the financial burden on the public sector. Last month, the civil aviation authority said it aimed to start privatising airports and related services next year.
The government would do more to diversify its sources of revenue beyond oil, which the IMF estimates will provide more than 80 per cent of revenue this year. Taxes, such as a levy on tobacco imports, might be increased.
In principle, the government would try to cover its deficit by issuing bonds rather than by drawing down its reserves, said one of the sources, who attended this week’s meeting.
It is not yet clear whether the new administration will be able to overcome the obstacles that have stood in the way of such reforms in the past.
But Mohammed bin Salman, who is in his early 30s, looks set to bring a more aggressive, performance-oriented approach towards managing the economy of the country. – (Reuters)
