Riyadh announced a plan to rid the country of the oil dependence by 2020. The reforms will be impossible without tax increases and subsidy cuts that could slow economic growth, experts say
Already in 2020 Saudi Arabia “will be able to live without oil,” declared the son of the Saudi king Salman Mohammed bin Salman. On Monday, he submitted to the Government, called “2030 Vision” reform plan until 2030. Cabinet approved it without objection, and the document was signed by King Salman. In an interview to Al-Arabiya Prince Mohammed said that the plan they developed will be implemented in all oil prices – high cost of its implementation does not require. Saudi TASI stock index rose 2.5% on Monday
The son of the King and Deputy Crown Prince Mohammed bin Salman headed the Council of Economic Affairs and Development -. A key economic planning body in the country, which oversees the work including the largest oil company in the world, the state Saudi Aramco. Muhammad called media favorite and most influential son of King Salman, who ascended the throne in early 2015. After the failure of negotiations on freezing prices in the Bloomberg Doha and FT wrote that now is Prince Muhammad, not technocrats ministers, determines the Kingdom policy in the oil market.
The Fund reform
The main instrument, which should save the country from dependence on oil, would be a sovereign investment fund Public investment Fund, which has been reformatted Prince Mohammed. The main parameters of the fund were known in advance, on Monday said the prince only them. The total size of the fund should amount to $ 2 trillion. The fund’s assets will include large state-owned enterprises – not only in industry, but also in real estate. They will be corporatized and partially privatized.
corporatized planned and the Saudi defense holding, the establishment of which was recently announced. “How can we be the third country in the world in expenditure on armaments and not have its own military industry?” – He asked a rhetorical question bin Salman in an interview. On his initiative, Riyadh is going to create a holding company under full state control, which would unite all the military-industrial enterprises in the country. After that, the company plans to make public spending its IPO on the Saudi stock exchange.
The proceeds from the sale of state assets funds Riyadh plans to invest in foreign assets. According to television channel Al-Arabiya, Prince Mohammed, on the fund will account for about “10% of the global volume of investments».
stock companies Saudi Aramco
The main asset of the fund should be the share of the world’s largest in terms of reserves and export n eftyanoy company Saudi Aramco. Now Saudi Aramco is wholly owned by the state. On Monday, Prince confirmed his intention to hold an IPO the world’s largest oil company. Sell Riyadh plans to only 5% of Saudi Aramco. The company’s shares will be posted on the Saudi Tadawul Stock Exchange, as well as on the foreign exchanges, possibly in the United States, Mohammed said. The remaining 95% will be made available Public Investment Fund. Earlier media reports named as the probable date of incorporation Saudi Aramco in 2017.
Prince Mohammed said that it would be a “biggest IPO in history.” Rate nonpublic Saudi Aramco difficult. The company’s revenue in 2014 was $ 378 billion. The potential market value of the Saudi Aramco estimate at least $ 1 trillion, there are so many is not worth none of the public companies in the global stock market. The proceeds Saudi Aramco in 2014. Bloomberg on the basis of reserves (260 billion barrel .) And the negative oil price forecast ($ 10 per barrel) evaluates the Saudi Aramco at least $ 2.5 trillion. In FT score is even at $ 10 trillion. Prince Mohammed himself adheres to a conservative estimate of $ 2 trillion.
Islam Green Card
Another part of the reform program will be administration within five years of the system Green Card. The system will allow Arabs and Muslims from other countries to live and work in Saudi Arabia for a long time. “It will be a source of revenue for the government,” – said bin Salman. He did not specify how the plan will be combined with long-approved program for “Saudization” local businesses. Since the low-paid manual labor in the kingdom occupied mostly immigrants from Pakistan and Bangladesh (their share in the population, according to the 2010 census, it was 31%), and high-skilled jobs occupied by specialists invited from the West, Riyadh, as well as other Gulf countries Bay, headed for the replacement of senior positions with local staff. Just last Friday the Minister of Labour Mufredzh al-Hakabani to report on progress in the “Saudization” the telecommunications sector.
As part of the development plan is also planned to attract tourists to Saudi Arabia. In particular, the authorities plan to build the world’s largest museum dedicated to Islam.
Less subsidies, more taxes
The authorities will have to reduce subsidies for the population. Prince Mohammed promised that Riyadh would try to minimize the damage to the inhabitants of the country – in particular, will provide cash benefits to families with middle and low income. But the Prince said that the reduction in government subsidies will affect all – including ministers, and himself. This should bring about $ 30 billion in the Kingdom of the budget year. Mohammed also commented on the growth of tariffs for gas and electricity, to which the kingdom has gone after the collapse of oil prices. According to him, the new measures have not affected the ordinary citizens, can not be said about the growth of tariffs for water supply. According to John Sfakianakis of Research Gulf Research Center in Riyadh, water bills have increased by 5-6 times.
According to the IMF, it is now in the realm of subsidies for gasoline, diesel fuel, electricity and natural gas up to 10% of GDP, or about $ 60 billion per year
By abolishing subsidies, Saudi authorities also impose new taxes -. including VAT and luxury tax, as well as beverages with a high sugar content . Due to this, the budget revenues will increase by $ 10 billion a year. this year’s budget in the kingdom was drawn up with a deficit of $ 87 billion.
At the same time, the prince said that Riyadh is not going to abandon the previously planned infrastructure projects. Proof of this looks like the announcement of the beginning of construction of “Bridge of King Salman.” – Road bridge across the Red Sea, 10 km long and worth about $ 4 billion in an interview with Al-Arabiya Prince Mohammed said that the bridge “linking Europe and Asia and will create huge opportunities for construction business and investment. ” At the same time
the cost of development of the transport network and infrastructure from the budget nevertheless decreased in 2016 by 63% (2015) to $ 6.4 billion. In 2016, they plan to reduce the budget deficit to 13% of GDP from 16% of GDP in 2015. In addition, Riyadh plans to reduce the unemployment rate from 11.6% to 7%. Cutting budget expenditures already came to fruition – if in 2015, according to the IMF, the Kingdom of the budget could be balanced with the price of crude oil Brent $ 94 per barrel, in 2016 – at $ 66
<. span> The reforms at the expense of low growth
«Care of the economy dependent on oil, is extremely difficult. Saudi Arabia says the need for such a step for several decades, but has made little progress in this direction. Prince will have a very difficult task, “- says Bloomberg Professor of the University of Texas A & amp; M Gregory Gause
IMF experts warn that reducing government spending will result in lower economic growth.. According to a 25 April report of the IMF, as a result of the reduction of budget expenditures growth rate in the non-oil economy of oil-producing countries of the Persian Gulf in 2016-2021 years will amount to only 3.25% (in the previous 10 years – an average of 7.75% annually). According to the head of the IMF Department for Middle East and Central Asia, Masood Ahmed, it can lead to the fact that by 2021 will be about 3 million unemployed in the region. Ahmed told Bloomberg notes that the slowdown in growth -. It is “the logical consequence of the reduction of budget expenses»
However, Ahmed noted that the IMF believes that Saudi Arabia “on the right track.” “In the current economic environment is absolutely necessary to have a plan and goals for the medium term”, -. IMF representative said
Challenges for the implementation of the Saudi reform, according to experts, may be created and the traditional institutions of the kingdom. In particular, according to James Dorsey from Nanyang Technological University, later Prince Mohammed necessarily have to bring changes in the relations between the Saudi ruling house and the Islamic orthodox clergy, whose conservatism harm the international reputation of Saudi Arabia.
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