Saudi Arabia’s Economic Dilemma
Saudi Arabia is slowly losing its charm as the rich gulf state. The Oil price war of March 2020, at a time when demand was already crashing due to global pandemic, has inevitably led to an Oil Price crash. Saudi Arabia needs a minimum price of $70 per barrel to balance its budget, which it failed to do so. Saudi Arabia has a unique economic model which is now seeming to be less attractive in the coming future.
What is Saudi Arabia’s Economic Model?
Saudi Arabian economy can be classified under a rentier state model. In this particular model an economy receives a substantial amount of external. For Saudi it’s OIL! Oil is the key player of Saudi Economy representing 2/3 of its exports and accounts for 87% of the government revenues. Saudi Economy is heavily dependent on the public sector, as it is the key deriver if the economy employing 67% of the Saudi Citizens. This is where the main problem arises as the Government has no alternative way to fund the extravagant budget of Kingdom and keep up with the generously hefty wages to state employees. During the first half of 2020, the oil prices fell by 60%, causing the state to rethink its economic policies. Such high dependence of the economy on the public sector, which relies on a single commodity can be very dangerous for the country. The public debt of Saudi Arabia has increased from 5% in 2014 to 25% of the economy in 2020.
MOHAMMED BIN SALMAN A Savior
The Saudi Economy is now looking for the solutions to its economic woes. The country is now focusing on stabilizing itself against oil shocks, modernizing the economy, and moving away from oil. To paint the rosy picture Mohammed Bin Salman, crown prince of Saudi Arabia, enters the story. He launched the ambitious Vision 2030, to move the Kingdom away from its Oil dependency by playing to strengths. Saudi Arabia is already a major tourist destination due to Islam’s two holiest sites being in the country, so it will be relatively easy to attract those tourists for leisure seeking activities through amusement parks and holiday resorts. MBS also wants to modernize Saudi Arabia as a country which he is doing by increasing the women rights in the country, building a $400 Billion mega city called NEOM, lifting the restrictions on entertainment sector, and aiming to increase tourism from 65 Million a year to over a 100 Million a year.
MBS now seems as the answer to every problem for Saudi Arabia. The country has a large young population and 50% of those unemployed are graduates. To make those Saudi Citizens employed he is working on a plan of “SAUDISATION” through which the Saudi Citizens will be preferred more than an immigrant. Many economists argue that this will also help the Kingdom to curb the capital outflows’ in form of remittances to immigrants’ home country.
Future of Saudi Economy
The Saudi economy operates a rentier style model being heavily dependent on Oil wealth which is both the blessing and hazard. State dependence on oil revenues reflected by the high proportion of public expenditure which drives the economy and export earnings. Reliance on foreign workers to fill many of its woes it is this dependence which poses a greater fiscal challenge in managing the Saudi budget given the volatility of oil prices. To Counter this state is trying to diversify itself from oil price shocks primarily through the Vision 2030 of Mohammed Bin Salman.
Now it is yet to be confirmed whether the actions of government will be successful or it is too late for such a large economy to realize its misery.
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