Alwaght- The economic crisis in Saudi Arabia is leaving in ambiguity the high-flying “Saudi Vision 2030” plan of the ambitious Crown Mohammad bin Salman that is aimed to transform the oil-dependent monarchy into the top regional economy.
The dual shocks of the oil price slump and then the coronavirus outbreak have dealt blows to Riyadh’s economic strategy. The non-oil sector, for example, this year is predicted to slope down by 14 percent.
Oil revenues account for about two-thirds of the national incomes of the Arab kingdom. While before the coronavirus pandemic crisis Saudi Arabia supplied around 30 percent of the global energy market oil, this percentage is now 12. In July, the country’s oil exports dropped 46.4 percent, data show.
This news for the Saudis means that the economic threat is serious.
Growing unemployment and poverty rates, widening general budget deficit, considerable downturn of the public income, hard currency reserves, and accumulating foreign debts are defining features of these gloomy days of the Saudi economy.
According to economic figures, the national economy shrank by 7 percent in the second quarter of this year. And the foreign trade surplus shrank 65.1 percent from January to July.
From another angle, the finance ministry expects the budget deficit to grow to $79.5 billion and the public debt to $227.7 billion. The public debt, the ministry predicts, can reach $250.9 billion. A couple of days ago, the ministry said that the kingdom recorded a $10.87 billion budget deficit in the third quarter of this year.
When it comes to other indexes, the Saudi economy has been slopping down too. The hard currency reserves lost $28 billion in the summer to move down to $488 billion.
The public reserves also lost 15 percent in August and thus they decreased 56 percent since 2015.
These critical conditions caused the Saudi banks to lose 40.9 percent, or $3.51 billion, of their profits.
The current economic predicament has raised concerns about social unrest. The UN special rapporteur in 2017 published a report on the severe poverty in Saudi Arabia saying that higher prices leave direct influences on the poor citizens, 2.4 million of whom receive financial support from the government.
When Riyadh for the first time in 2018 increased the value-added tax and decreased the energy subsidies, the government started paying about 1 million state employees $267 a month to curb the economic pressures on the middle and lower classes. The monthly payment was discontinued in July however as the government announced a string of austerity measures, targeting $4.8 billion annual saving. The next move was value-added tax hike to 15 percent from 5 percent.
One of the signs of shrinking living conditions in Saudi Arabia is the decrease in vehicle sales. In 2015, the year the oil prices began to fall, the annual demand for passenger cars was 800,000. This downturned to 400,000 in 2018, according to reports. The demand for new cars was expected to decrease one-thirds this year as the value-added taxes increased.
In addition to gas and diesel price hike, water, public transportation, and other services bills witnessed an increase. The government may want to introduce new taxes like on income as part of austerity measures and economic reforms aimed at boosting efficiency, easing pressure on state finances, and diversifying the oil-dependent economy.
To curb the widening budget gap, the government may also turn to foreign countries for loans and more accelerate privatization that would take selling its flourmills, desalination and power plants, and also 27 state-owned airports. Odds are that it will transfer job creation programs, especially in healthcare and education areas, to the home private sector and foreign investors.
The country may also delay launching several important investment projects that are designed to create new job opportunities and push up the growth rate. Such a move will destroy the calculations of the Saudis about the reduction of the unemployment rate to 7 percent in the Vision 2030 document and 10.6 percent for this year.
The latest data released by the government show a growing unemployment rate in the country. The unemployment rate in the third quarter rose to 15.4 percent in comparison to 11.8 percent of the first quarter of this year. It is noteworthy that the high unemployment rate is coming despite about 2.5 million expat workers left the kingdom since 2017.
The overcast economic conditions are coming while Saudi Arabia’s population saw fast growth in the past decades, doubling since 1990. But for the Saudis of 30, it is so hard to find a job. Roughly, two-thirds of the population is below 30, most of them unemployed university graduates.
The rallying unemployment rates hint at the failure of the economic policies of the bin Salman. Despite the huge foreign wealth of the country— around $500 billion— the country is devoid of new job opportunities for the graduates. Even worse, the government is even unsuccessful in saving existing jobs.
It is predicted that 1.2 million more foreign workers leave Saudi Arabia by the end of this year as a result of the current crisis and this may ease finding jobs for the Saudi citizens, only if the jobs survive the coronavirus crisis and its economic consequences and the employers be ready to pay higher for the Saudi nationals, as lower payment is the advantage of employing foreign workers.
All these facts emphasize that the economic and financial storms may be coming to the Saudis.