Saudi Arabia plots shake-up of economic policy
Saudi Arabia may have until 2020 to make its economy less vulnerable to oil prices
Saudi Arabia is plotting its biggest shake-up of economic policy in over a decade - pressured by cheap oil strains on its budget and currency and a record announced state deficit of around $100 billion (SAR374.9bn).
The size of the central bank's net foreign assets, $628 billion in November 2015, suggests Saudi Arabia may have until 2020 to make its economy less vulnerable to oil prices. The 5 year window may be needed to overcome historically slow and inefficient bureaucracy.
Previously unheard of plans are now set in motion such as selling off stakes in the operations of big state companies like national oil giant Saudi Aramco, and industrial holdings held by the government such as mineral deposits, would be made available for private investment and development.
There are talks of dividing up parts of the government itself, including some areas of the national health care system, and convert them into independent commercial companies to improve efficiency and reduce the financial burden on the state.
By awarding contracts to new firms and providing finance, financial resources would be geared towards diversifying the economy such as in shipbuilding, information technology and tourism.
Aramco had announced a shipbuilding and repair complex to be built on the eastern coast, creating up to 500,000 jobs.
With current austerity measures being benchmarked against a $40 per barrel crude, lower oil prices could force more tightening of expenditures in non-essential sectors.
Fadl al-Boainain, a prominent Saudi private-sector economist said, "There is a real concern in the private sector about spending cuts and the liquidity drain, which will increase borrowing costs. The sector is also worried about job cuts related to the economic changes."
The country may face a dearth of unskilled workers. A Saudi executive told Reuters that one million of the country's roughly 10 million foreign workers might be sent home in the next year.
Another challenge is creating the skilled Saudi workforce needed for new projects, in a country where some two-thirds of local workers are employed by the state.