Saudi Arabia retooling its economic reform programme
The revised NTP 2020 is reportedly to be completed by the end of October.
2017/09/24 Issue: 124 Page: 18
Amid swirling speculation of an impending transfer of power within the House of Saud, the Saudi government is in the process of retooling its national economic overhaul programme that covers the period of 2016-20.
The timing of the changes to the kingdom’s National Transformation Plan 2020 (NTP) may not be too surprising as the success of the economic reforms could be critical for the political future of the plan’s chief architect, Saudi Crown Prince Mohammed bin Salman bin Abdulaziz.
The revised NTP 2020 is reportedly to be completed by the end of October. While details are hammered out, the much-hyped initial public offering (IPO) of state crown jewel Saudi Aramco, expected in late 2018, is on track as it falls outside of the purview of the NTP.
Because he has raised extremely high expectations among the Saudi citizenry — particularly the country’s youth — for the economic and social changes he wants realised in the coming years, Crown Prince Mohammed’s credibility and popularity could be in question should he not be able to follow through with his aggressive agenda.
Since his father, King Salman bin Abdulaziz Al Saud, ascended the throne in January 2015, the young royal has amassed a dizzying amount of power and oversight of wide-reaching government responsibilities, having been named deputy crown prince in April 2015 and, in June, replacing Mohammed bin Nayef bin Abdulaziz as crown prince.
Rumours are running rampant that King Salman could abdicate the throne and transfer power to his 31-year-old son. To shore up support for such a historic power shift, Crown Prince Mohammed needs to demonstrate that the kingdom’s fiscal health is improving, as he has been overseeing Saudi economic policy for more than two years, and would thrive should he succeed his father.
This could be a tough sell given that continuing low oil prices have contributed to a stagnant Saudi economy that has endured several years of significant budget deficits and is expected to record GDP growth of 0.1% this year. However, a recalibrated five-year economic plan could be a strong public relations move to ease concerns should a power shift be imminent.
Launched in June 2016, the NTP set the foundation for Saudi Vision 2030, Crown Prince Mohammed’s sweeping economic revamping programme to permanently steer the kingdom from its dependency on an oil-income-based economy. Financial observers lauded the intent of that mission, which included privatisation of state assets, the cutting and eventual curtailing of energy-related price subsidies, the introduction of taxes, the creation of private sector jobs and reducing unemployment.
However, the consensus was that target dates to hit key NTP objectives were overly ambitious and that expectations for full implementation of the economic overhaul under Saudi Vision 2030 were unrealistic given the bureaucratic difficulties faced in establishing new financial procedures as well as opposition from within the ruling family, the religious establishment and leading merchant families.
In tweaking the NTP, priorities will reportedly include reforming the government bureaucracy by enhancing civil service productivity and pressing for more government transparency, both long-standing challenges for the kingdom. The new NTP will address increasing female presence in the workforce and backing small- and medium-sized firms.
In the revised NTP, target dates for some goals that were initially set for 2020 will be pushed to 2025 or 2030. For example, two goals stipulated in the original NTP were the creation of at least 450,000 non-governmental sector jobs and reducing unemployment from 11.6% to 9% by 2020, both of which seemed highly unrealistic in the given time frame and will likely be assigned new target dates.
Other objectives set for 2020 that are likely to see new end dates include the kingdom’s private sector funding of 40% on major projects to ease pressure on state coffers and a push to provide $72 billion of goods and services to be sourced locally, increasing the volume of locally sourced products from 33% to 50%.
The Saudi government has stated it is committed to balancing its state budget by 2020 as part of the NTP objectives, which, given Riyadh’s continued dependency on oil revenues amid depressed crude prices and high government spending, appears improbable. The budget deficit for 2017 is forecast at $52.8 billion.
The government trimmed approximately $8 billion from its projected deficit in 2016 thanks to austerity measures, including scaled-back energy-related price subsidies and the introduction of new taxes. While financial observers laud these economic reforms as necessary steps in the right direction, the worry is that success relies not just on revenue-earning measures such as subsidy cuts and taxes but on implementing concrete methods to stimulate economic growth.
To reassure investors that the retooling of the NTP did not suggest the country’s economic reforms were in peril, the Saudi Information Ministry released a statement stating in part: “Vision 2030 builds on early successes and is strengthening its delivery mechanisms as it increases the scope and pace of implementation… The government privatisation programme continues to gain traction and the plan for an initial public offering of a stake in Saudi Aramco remains on track.”