Saudi shake-up set to bolster reforms

Kingdom restores allowances as its fortunes improve but urges citizens to fully support economic changes

rogress on the important reforms in Saudi Arabia received a substantial boost this week when King Salman Bin Abdul Aziz Al Saud announced a major reshuffle of government posts, as well as restoring bonuses and allowances for those working in the public sector and military. The announcements followed the report from Deputy Crown Prince Mohammad Bin Salman Al Saud that his reform plans are moving ahead — with the budget deficit dropping, and non-oil revenue going up 46 per cent from 2014 to 2016 and due to rise another 12 per cent this year.

Prince Mohammad has launched a major reform of the structure of Saudi business and public finance, which is linked to a substantial shift in social expectations. His Vision 2030 is designed to foster new private businesses, improve education and trim the budget deficit by cutting subsidies and introducing a 5 per cent value-added tax. Prince Mohammad told the Washington Post last week that the crucial requirement for reform is for the public to accept the necessity of change in a very traditional society.

“The most concerning thing is if the Saudi people are not convinced. If the Saudi people are convinced, the sky is the limit,” he told David Ignatius.

King Salman’s reshuffle of ministers and senior state officials, including several governors, was designed to support the reforms, and make the machinery of government more efficient.

It is significant that the changes include a special committee that will investigate allegations of corruption, in an unusually public condemnation of misusing public office for private gain.

There is no doubt that Saudi Arabia has to diversify its economy so that it ceases to be dependent on oil. It did not seem so urgent when the oil price was high but when the price of oil fell below $30 (Dh110) a barrel early last year, the urgency to diversify was more obvious.

The price has crept back up to around $50 but is not likely to return to $100, so the Saudi government has to plan to build a large enough economy that it can tax so that the government can be sure of finding enough revenue to maintain the state.

This is the heart of the Vision 2030, which cannot succeed without the country’s young men and women becoming more entrepreneurial and playing a larger role in the public life of their country. This social revolution needs to run hand in hand with economic diversification.