Saudi Arabia's ambitious reforms may disappoint
Long-stalled efforts to diversify away from oil are essential for the kingdom's fiscal viability
Saudi Deputy Crown Prince Mohammed bin Salman announced a long-term economic and social reform plan, 'Vision 2030', yesterday. The plan aims to reduce the economy's dependency on oil and address social problems such as unemployment and housing by 2030. Key steps included restructuring the state investment fund and other state assets and agencies, a 5% IPO in state oil company Aramco, subsidy reduction, and a new 'green card' system to encourage expatriates to stay longer in the kingdom. The deputy crown prince, who leads the kingdom's economic policy, also announced plans to establish a military industry to reduce defence spending, and to boost the tourism, mining and renewable energy sectors.
Our judgement
The kingdom will reveal fuller details of its reforms in the 'national transformation plan' due to be announced in the coming days. Its ambitious scope and the politics of implementation mean that the proposed revenue-generating reforms could take much longer and yield much less than expected -- this would make politically sensitive cutbacks, for example to the public sector wage bill, necessary in the medium term.
See GULF STATES: Politics may stall diversification drive - October 28, 2015.