Saudi Arabia’s Blurred Vision for Economic Reform
(Bloomberg Opinion) -- Saudi Arabia seems already to have forgotten Vision 2030, the ambitious reform plan it announced amid great fanfare just two years ago. The kingdom’s expansionary new budget suggests that the government lacks the resolve and the discipline to wean the country from its dependence on oil, shrink state handouts, and develop a viable private sector.
Next year’s budget, announced Tuesday, calls for nearly $300 billion in spending, the largest outlay in the kingdom’s history, despite weak oil prices and falling production. It projects a deficit of 4.2 percent of gross domestic product, but that gap may widen, given that the revenue forecast depends on improbably high prices. The government also announced it will extend for another year its annual handouts to citizens — exactly the kind of extravagance that Vision 2030 meant to eliminate.
The new spending will wipe out any gains from the few reforms that have been put in place, such as a 5 percent value-added tax. And it will deepen doubts among investors, local and foreign alike.
There are steps the government could take to reassure investors that its vision for a diversified and well-managed economy is not ruined. A good start would be to abandon the grandiose plans to spend $500 billion building a new city on the Saudi Arabia’s northwestern coast. Foreign investors have cooled on the idea, and scrapping it would help compensate for the budget’s spending. The government should also speed up the privatization of 14 state-owned companies it announced in April. And it would help firmly end handouts after 2019.
Leaving investors in doubt about the kingdom’s commitment to reform will deepen problems that are already roiling the economy — including the fallout from the murder of journalist Jamal Khashoggi. Capital flight has already forced the government to pump billions of dollars into the Saudi stock market. This is not sustainable. Desperate measures are no substitute for deliberate economic reforms.
Editorials are written by the Bloomberg Opinion editorial board.
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