The Saudi Arabian National Transformation Plan and Vision 2030 have already over stimulated the saliva glands of banking and advisory community. Of course, these stakeholders are looking for fees from the Aramco IPO, forthcoming bond issues and the investments the proceeds will go into. Indeed, optimism about change is in the air—if not from those expats about to be taxed for the first time.
But Saudi Arabia’s problems cannot be fixed by financial engineering. Saudi Arabia is deeply dysfunctional, and the government survives because years of surplus oil revenues have compensated for and indeed created a culture of entitlement for the Saudi population.
With oil now well below Saudi Arabia’s budget break-even price—and likely to remain so—this situation can continue for only a few years.
This is the problem identified in Vision 2030. Saudi Arabia cannot go on as it does now subsidizing the lifestyles of the overpaid and on grand projects. The reality is that between now and 2030, gross domestic product (GDP) per capita will drop significantly, and every Saudi—except members of the Saud family—will become much poorer, particularly young Saudis who have been educated to expect a life of well-paid sinecure. How much pain they are willing to endure in this process is not clear, but it will be fertile ground for new political ideas. Here lies a great danger.
At the moment, about 70% of Saudi government revenue comes from oil. The Saudi public sector employs more than two-thirds of all Saudis, and together with unemployment benefit and subsidies, the share of Saudi household income coming from the government is on average about 80%.