Saudis mustn’t wait to adopt reforms to cut debt, create jobs

Kingdom requires public and private investments of as much as $4tr as part of a strategy

Saudi Arabia can’t afford to wait for oil prices to recover and needs to accelerate economic measures to avoid rising unemployment, deficits and debt, McKinsey & Co Inc said in a report released on Thursday.

The country requires public and private investments of as much as $4 trillion (Dh14.7 trillion) as part of a strategy to boost productivity and create jobs, the report said. Based on current trends, Saudi Arabia “could face a rapid economic deterioration over the next 15 years.”

Even a public spending freeze and halt to hiring foreign workers would still leave the country facing falling household incomes, rising unemployment and weakening finances.

“This is a call to dramatically accelerate reforms which ultimately will provide a more tapping debt markets the deficit.

The bulk of the $4 trillion in investments needed would come from the private sector and should focus on mining and metals, petrochemicals, manufacturing, retail, tourism, health care, finance and construction, according to McKinsey. If this level of investment were achieved the country could double the size of its economy and create six million new jobs by 2030.

Failure to make progress on productivity-boosting measures would lead to the government’s finances “deteriorating sharply,” according to the report. Reserves would drop and public debt could reach as much as 140 per cent of GDP.

“Even freezing spending would still mean burning through its reserves at a rapid pace and lead to the a decline in average incomes,” Woetzel said.

Saudi Arabia’s cabinet last month approved a landmark tax on undeveloped urban land to encourage the development of empty real estate and address a housing shortage.

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