New fiscal measure to secure Saudi Arabia’s mid-term future

Current fiscal measures deployed by Saudi Arabia should help ensure a sustainable economic future for the country in the medium term, said an industry expert.
The Kingdom has implemented several measures to protect fiscal balances from the oil price drop, explained Jorge Mariscal, Emerging Markets chief investment officer at UBS Wealth Management, a global wealth manager.
Government spending was cut by 15 percent in real terms in 2015, and a further cut of 16 percent is envisaged for this year. Going forward, several measures will likely be implemented to raise the share of nonoil revenues, such as the introduction of VAT in the GCC region. The Kingdom’s ambitious development plan Vision 2030 was announced in April.
The plan aims to reduce the Kingdom’s dependence on oil, boost the private sector’s role in the economy, lower national unemployment, and raise non-oil revenues almost four-fold to about 20 percent of GDP by 2020.
It involves the creation of a large sovereign wealth fund, the sale of less than 5 percent of Aramco shares by 2018, and an array of fiscal and structural reforms. The share of nationals in total labor is projected to increase from 44 percent in 2014 to 60 per cent by 2030, with most of the new jobs being in the private sector.
“The key to ensuring that Vision 2030 is achieved is to guarantee that nationals are equipped with the right qualifications to make them competitive in the private sector job market, while absorbing talent transitioning from the public sector,” Mariscal said, according to TradeArabia News Service.
“Following the current fiscal consolidation and other proposed reforms, the Kingdom's finances should find a more sustainable footing in the medium term. This is despite declining oil revenues impacting fiscal and external balances and a surge in public spending. Government level reforms, including closure of a number of overlapping councils, commissions and committees, should benefit the economy, reducing red tape and making the government smaller, more efficient, and more accountable.”
However, even lower oil prices might pose a risk to reform implementation, according to UBS.
Geopolitical risks could distract the government from much-needed reforms domestically. Nonoil GDP could be hit potentially due to austerity measures. 
The general government debt-to-GDP ratio is expected to be about 10 percent of GDP in 2017, up from 1.5 percent in 2014. The sovereign net foreign asset position is also expected to drop quite sharply. Growth is expected to slow to about 1.5 percent in 2016-2017.

Source: Arab News