Latest Saudi cabinet shake-up in line with Vision 2030 goals
Washington - Saudi King Salman bin Abdulaziz Al Saud removed long-serving Finance minister Ibrahim al-Assaf in what appears to be the final push to replace the cabinet old guard with younger, reform-minded individuals loyal to Deputy Crown Prince Mohammed bin Salman bin Abdulaziz and his Vision 2030 economic programme.
The new Finance minister, Mohammed al-Jadaan, was previously chairman of the kingdom’s stock market regulator, Capital Market Authority, and helped pave the way for direct foreign investment in the Saudi stock market in 2015.
Assaf’s removal is not surprising, as he was one of the last members of the Saudi cabinet overseeing a crucial portfolio to have been appointed by King Fahd bin Abdulaziz Al Saud and subsequently kept in place by King Abdullah bin Abdulaziz Al Saud. Assaf — who was appointed in January 1996 — will remain in the cabinet as a minister of State.
Replacing veteran ministers is par for the course for a new leadership as it looks to stamp its own unique imprint on the governing process but Prince Mohammed also wants ministers responsible for implementing fiscal policies to be in step with his overall vision. He reportedly lobbied his father, King Salman, to replace Assaf with Jadaan.
Assaf had been in a tough spot since the summer of 2014 when the government began pursuing an aggressive oil production strategy in coordination with other members of the Organisation of the Petroleum Exporting Countries (OPEC) to drive international oil prices down and force higher-cost producers to cede market share.
The kingdom has since watched its economy go into a tailspin, recording a $98 billion budget deficit in 2015 and facing a projected $87 billion deficit this year. In 2015, the Saudi central bank withdrew as much as $70 billion from global asset managers to help plug the budget deficit. The government began regular monthly sales of domestic bonds in mid-2015 to help raise cash and it brought in $17.5 billion in October through its first international bond issuance.
As part of Prince Mohammed’s reforms, Assaf was working to implement stringent energy subsidy reductions as well as overseeing other austerity measures, including cuts in ministers’ salaries and the curtailing of bonus payments and entitlements for state employees.
Assaf may have inadvertently contributed to his own departure because of his recent participation on a popular Saudi TV talk show, Al Thamena, in which he, Deputy Economy Minister Mohammed al- Tuwaijri and Civil Service Minister Khaled al-Araj joined forces to justify the subsidy cuts and salary adjustments as part of the larger plan to bolster the battered economy.
The participation of the ministers in a public forum to defend controversial government policies was unusual in itself but comments made by the ministers proved even more surprising. Araj accused civil service employees of being unproductive and Tuwaijri claimed fiscal austerity moves were necessary to prevent the country from facing bankruptcy in three or four years.
The deputy Economy minister also criticised inefficient government spending on unnecessary large-scale projects during high oil revenue days, effectively implicating Assaf for those wasteful practices because of his long tenure. “We invested in a lot of projects, some of them not appropriate or planned for… Some were a luxury or could maybe be done without,” Tuwaijri stated.
When Assaf tried to stave off the criticism, arguing that it was “difficult to judge now” whether past projects were economically unsound, Araj appeared to side with Tuwaijri. Reading from a list of ill-conceived public projects, the Civil Service minister highlighted a bridge construction project costing $13.3 million in a remote area of the kingdom that “they don’t need now or in 100 years”. While Assaf’s era at the Finance Ministry was undeniably nearing an end, that hour on Saudi television likely accelerated his departure.
The new Finance minister will be a strong public advocate for any future austerity measures. Jadaan will also play an integral role in preparing for the 5% sale of Saudi state oil firm Saudi Aramco through an initial public offering (IPO) scheduled for 2018. That IPO and the funding of a new mega sovereign wealth fund from its proceeds are the centrepiece of Prince Mohammed’s plans to free the kingdom from being an oil-dependent economy.
Much therefore is riding on the success of the Saudi Aramco sale. Jadaan will be tasked with providing the financial transparency of the company that foreign investors will expect before taking part in the IPO. In his previous capacity at Capital Market Authority, Jadaan relaxed restrictions on foreign investors operating in the kingdom, opening the door for them to take larger stakes in firms listed on the Saudi stock exchange. That easing helped the Saudi government set the stage for the state oil firm’s impending offering.