First phase of Saudi Vision 2030 economic reform plan begins
JEDDAH - Saudi Arabia initiated its Vision 2030 reform plan with the kingdom’s cabinet approving plans designed to diversify the economy, wean the country off its dependency on oil and create employment opportunities for the Saudi populace.
The National Transformation Plan (NTP), the brainchild of Deputy Crown Prince Mohammed bin Salman bin Abdulaziz and a part of the Vision 2030 road map, was endorsed on June 6th by the Saudi cabinet, setting in motion the most ambitious economic reform drive in the country’s history.
An aspect of the plan aims to curb government spending. Salaries of government workers during the next five years are expected to drop from 45% of government spending to 40%. Subsidies for water and electricity are to be cut $53 billion.
Spending cuts will help fund the $72 billion reform plan, according to Saudi Finance Minister Ibrahim al-Assaf. “Part of it will be made available from cancelled projects or projects that were downsized and part of it will be made available from revenues that will rise — oil and non-oil revenues,” he said.
Saudi economist Talat Hafez said the Vision 2030 plan would generate more than 450,000 jobs in the non-governmental sectors by 2020 through governmental collaboration with the private sector. Riyadh intends on providing about “40% of government spending on initiatives and increasing the private sector’s contribution to gross domestic product to 65%”, he said.
According to government figures, about 70% of the Saudi population is employed in the public sector, with government spending in 2015 on salaries and allowances estimated at $120 billion.
Approximately 55% of the kingdom’s population is under 25, making job creation of the utmost importance, especially considering that the 2011 “Arab spring” protests were mostly due to lack of job opportunities. According to the Saudi government figures, unemployment is 11.7%. The government aims to bring that figure down to 7% by 2030.
Minister of State Mohammed Al al-Sheikh, who is tipped to be the next Finance minister, said the government would not introduce an income tax in its reform agenda, something that has been speculated about.
However, a proposal to tax expatriates in the kingdom, who make up 30% of the population of about 30 million, is an option. According to Finance Minister Ibrahim al-Assaf, the proposal to tax expatriates was recommended in Vision 2030 and will be studied.
“It is, in reality, an old proposal and it was presented in the past but it is one of the initiatives that will be raised by the Finance Ministry,” he added.
Analysts do not predict that would become a reality anytime soon as it could handicap the kingdom in attracting skilled workers and professionals during the economic downturn.
“I don’t believe it’s wise to introduce such a thing at a time when the kingdom is trying hard to attract direct foreign investments, and not having income taxes was one of the most attractive prospects here,” said Mohammed Alsuwayed, the Riyadh-based head of capital and money markets at Adeem Capital.
In May, the International Monetary Fund praised the kingdom’s economic reform plan, describing it as “an appropriately bold and far-reaching transformation of the Saudi Arabian economy”.