Saudi Arabia’s ambitious plans to transition away from oil dependence by 2030 remain in a fledging state, according to the Saudi Ministry of Finance’s 2017 first quarter fiscal performance report released May 11.
Props to the nation for cutting its budget deficit by nearly 71% in the last year, but the impressive reduction highlights a continued fiscal dependence on oil prices - while public sector reform continues to take a back seat.
Saudi Vision 2030 Aims To Transition Away From Oil Dependence
With the continuing decline of OPEC’s influence and the U.S. becoming the world’s premier oil and gas producer and supplier, Saudi Arabia has focused its efforts on moving away from oil dependence and toward education and public sector development.
According Deputy Crown Prince Mohammed Bin Salman’s “Vison 2030,” the nation planned to spend 2016 focusing on new avenues for economic growth outside of the energy sector, including improvements in education and innovative private ventures.
The Saudi’s made plans to sell a portion of Saudi Aramco to the public marketplace and decrease the budget deficit by imposing taxes and reducing subsidies.
Saudi Arabia's Ministry of Finance also aimed to enhance economic transparency, publishing the nation’s first-ever quarterly fiscal performance report in 2017. According to this report, Saudi Arabia has succeeded in significantly reducing its budget deficit over the past year, by an impressive 71%. However, the decreased deficit highlights the nation’s continued fiscal dependence on oil prices rather than any substantial progress on reform.
Saudi Deficit Drop Suggests Ongoing Fiscal Dependence on Oil
According to the report, Saudi spending still exceeds revenue, but the nation has reduced its year over year budget deficit by 4% of Saudi GDP in the last year, with a negative 26 billion SAR between spending and revenues compared to the 91 billion SAR seen in the first quarter of 2016.
Yet Saudi’s impressive deficit reduction numbers were merely a reflection of the rising price of oil – which caused oil revenues to more than double from 52 billion SAR to 112 billion SAR. Non-oil revenues made up less than one-third of total revenue, increasing by only 1% year over year.
“While the decline in the budget deficit may have exceeded the government’s expectations – to only 13% of the full-year budgeted shortfall – the lack of progress on the non-oil fiscal balance highlights the difficulties Saudi Arabia faces in its diversification and reform ambitions,” the Saudi Ministry of Finance stated.
The successful deficit reduction could weaken the nation’s efforts to reform and transition away from oil by 2030. Future energy subsidy cuts will suggest an ongoing commitment to Vision 2030 and whether the Saudi’s will execute their ambitious restructuring program.
Shifting this oil-dependent nation in a new direction is going to take time, but making a concerted effort now will be considerably less painful than the alternative.