By Arab News
Saudi Arabia’s 2017 budget, announced today, will include some tough decisions which neither nationals nor expats living in the Kingdom are used to nor will find easy.
However, with the ongoing oil price crisis, Riyadh — which until today still relies mostly on the energy economy — had only one of two options: Fight or flight.
Rather than burying its head in the sand, praying for solutions and exhausting its reserves, the government opted for the more difficult of the two choices: To fight.
Believing that the best time to introduce reforms is when your back is against the wall, the Saudi leadership earlier this year announced an ambitious, yet undoubtedly challenging, set of reforms under the umbrella of Vision 2030. It was an overarching initiative spearheaded by Deputy Crown Prince Mohammed bin Salman, who is head of the Kingdom’s Council of Economic and Development Affairs (CEDA).
Many Saudis believe in the vision and value its importance, particularly given that it was crafted after a series of focus groups and workshops, which included many representatives of the country’s population. However, there were those — mostly people who benefit from the status quo — who sought to brush off the reforms as either unattainable or unnecessary.
Of course, there is no question that, over at least the next two years, the majority will suffer from a financial pinch — and the criticism of the reform plans will now undoubtedly increase.
After all, citizens and residents of the oil-rich Kingdom are not used to paying a higher rate for energy prices; and of course, the impact does not stop there, as the domino effect will also mean price increases for goods and services; many of which will soon also be subject to a value-added tax (VAT).
Expats working in the Kingdom, who also began paying a higher rate on their entry/exit visas this year, will also be subjected to paying fees for as long as they work in Saudi Arabia. However, these fees are minimal and are in no way comparable those levied in the US or European countries, where not only a hefty income tax (reaching 50 percent in some cases) applies, but also taxes on energy, water, municipality or council services, property transactions, inheritance and even TV licenses.
Yet to say that these Saudi reforms were not necessary is simply ignorant. Numbers Arab News has reviewed with senior government officials over the past few days demonstrate a real “doomsday scenario” within less than five years if such reforms were not introduced as quickly as they have been.
The good news is that the 2017 budget, and the government’s budget-balancing act it aims to achieve by 2020, has assumed only the worst-case scenario. Things will be ever rosier if positive factors come to pass, such as the imminent oil output deal, and the eagerly-anticipated Saudi Aramco initial public offering.
We should not neglect to mention that the price hikes are going to be introduced alongside a generous government assistance program, the aim of which is twofold. It will both help Saudis on low incomes cope with the increased rates, while at the same time attempt to limit waste and rectify bad habits by offering incentives to citizens who cut down on their energy and water consumption.
The measures announced today come with a whole set of commitments designed so that the people of the Kingdom will begin seeing the results as soon as possible, and that a budgetary balance is achieved by 2020, paving the way for a sustainable economic future.
First and foremost, Riyadh has pledged full transparency on its projects and spending. Now, while some might be wary of Saudi Arabia’s dealing with the International Monetary Fund (IMF), the reality is what better “seal of approval” could the economy get than working with the IMF and other such internationally-trusted entities?
What is interesting is that the pledge of being transparent is not only directed outwards, but inwards as well; even though the government does not actually have to make such promises. Among the reforms it intends to introduce is a public record detailing the achievements, KPIs and spending of different ministries and entities.
Will this succeed? Well, there have been many Saudi projects which were announced and never delivered; however, the majority of the ones that were fruitful had one thing in common: The involvement of the head of state himself.
A few days ago, Custodian of the Two Holy Mosques King Salman addressed Saudi Arabia’s Shoura Council and made it clear he is fully supportive of the reforms. He was also the first to subscribe to full transparency when it comes to the reality of what the various economic reforms will entail.
As he said earlier this year, they “might be painful in the short run but ultimately aim to protect the economy from worse problems.”