This week the National Transformation Plan (NTP), a key component of Saudi Arabian Deputy Crown Prince Mohammad bin Salman’s Vision 2030, was released outlining a blueprint of how to restructure the economy for a post-oil era.
The petrodollars gushing out of desert kingdom’s oil wells have reduced in intensity in the recent years forcing the government to tighten its purse strings.
However, the lack of any checks on expenditure at a time of low oil prices meant that the government was spending more than it earned. Thus, in 2015, Riyadh posted a budget deficit of $98 billion, and this year the deficit is estimated at $86 billion.
The NTP aims to shift the economy’s dependence on revenue from the sale of oil to non-oil products. Reforms suggested cut across sectors and range from greaterfemale participation in the workforce to an increase in power and water tariffs. The plan has set an ambitious target of creating 450,000 jobs by 2020—last year only 50,000 were created. The plan aims to raise non-oil revenue by 140% and for this a slew of measures like VAT, sale taxes, airport fees, and taxes on tobacco and soft drinks among others will be introduced. Riyadh also plans to raise funds, of about $15 billion, through the sale of bonds — a move unthinkable a few years ago.
A controversial suggestion, which was later denied on Tuesday, was the plan to tax foreigners. If implemented, it would mean taxing one in three of the 30 million residents in the kingdom. This will have a direct bearing on India. There are close to three million Indians residing in Saudi Arabia, and taxing their income would mean less money is saved to send back home. In the financial year ending March, remittances to India from NRIs in the GCC declined by about 2.2% to $35.9 billion, when compared to $36.7 billion the same period last year.
The plan reflects Prince Salman’s ambition for Saudi Arabia, but change in the kingdom is easier said than done. To bring about large-scale economic changes, to a population that has been habituated to government handouts, in a short span without upsetting social and political equations will be a tightrope walk for the prince. In addition to its economic woes, Saudi Arabia has to adapt to the geopolitical changes in the region, find a solution to its war in Yemen and tackle the serious threat of terrorism. All of this could well mean a bout of instability ahead.