The double blow of depressed oil prices and the COVID-19 pandemic is placing unique pressure on the Saudi economy. COVID-19 has further devalued oil and wreaked havoc on the non-energy sectors Saudi Arabia is trying to develop in the name of diversification.
Current dynamics are testing the sustainability of the rentier state and prompting the introduction of unprecedented austerity measures. Saudi Vision 2030, the centrepiece of Crown Prince Mohammed bin Salman’s mission to transform the kingdom, is largely on hold and may never return to its original form.
In 2020, Saudi Arabia decided to raise value-added-tax (VAT) from five percent to 15 percent in 2020.
In 2022, Saudi Arabia posted its first budget surplus in nearly a decade, as it restricted public spending despite a surge in oil prices that helped to refill state coffers hammered by the pandemic.
Indeed, despite a 3.4% drop in Saudi crude production in January-October at 8.9 million b/d, compared to the same months in 2020, the kingdom’s total 2021 revenues rose to Riyals 930 billion ($248 billion) from Riyals 782 billion ($208 billion) in 2020.
For the fiscal year 2022, the kingdom expects revenues to come in at Riyals 1.045 trillion ($279 billion), a 12% increase from 2021, as the OPEC+ production cuts continue to be unwound.
However, questions are raised why Saudi public spending continues to be restricted despite achieving a surplus of 90 billion riyals ($23.99 bn).
Ten years ago, a budget surplus was allocated to improve the economic condition of Saudi citizens. Nowadays, it is allocated to strengthen the financial position of the state.
In 2012, the surplus (306 billion riyals) was allocated to finance:
- The construction of 500,000 housing units
- Paying a two-month salary to active and retired civil and military employees.
- Increasing the minimum wage
- Paying a two-month scholarship for university students.
- Compensating the Public Investment Fund for the Haramain high-speed railway project spending.
In 2022, the surplus allocated to:
- Pay an instalment of the public debt.
- Implement some strategic projects.
- Support the Public Investment Fund.
The decline in public spending over the past recent years is due:
1- War in Yemen
2- Value-added tax.
3- High debt
4- The increase in the unemployment rate
Meanwhile, Saudi Arabia’s sovereign wealth fund declared an intention to buy English soccer club Newcastle United for about 340 million pounds ($447 million).
The Saudi fund has also bought an 8.2 percent stake for $775 million in the embattled cruise line Carnival.
All these investments into foreign corporations came at the expense of the Saudi citizen, who was the first beneficial of the public spending.
