Saudi Arabia-Luxury for royals, austerity for ordinary

Saudi Arabia is the 3rd largest spender on defence 

The drastic austerity measures and cuts announced by Saudi government have raised some questions regarding the conduct and policies of Saudi Royals. There is no doubt that Saudi government is facing huge budget deficit due to oil price crash.  It has presented every budget with deficit since 2014. The record low prices have devastated impact on Saudi economy which mainly depends on oil revenues. Oil revenues contribute 70% to the public revenues in Saudi Arabia.   

The historic low prices have forced the government to make necessary adjustments to balance the ballooning budget deficits. It has lost big chunk of oil revenues after the oil prices crashed due to coronavirus related lockdowns. Saudi Arabia is no longer in a position to continue with lavish spending.

The International Monetary Fund (IMF) in April projected that the Saudi economy would contract by 2.3% this year. The negative GDP growth means deep economic crisis which will result in job losses and lower incomes.  The Saudi government is expecting to lose half of its oil revenues this year. Saudi finance minister has said that the kingdom will borrow more than %60 billion this year to plug the budget deficit.

Saudi rulers have left with no other then to impose cuts on state expenditures. But they have two choices to make these cuts and austerity measures. One choice is to make cuts on state subsidies- handouts and social spending aimed for general public. The other choice is to make cuts on the lavish expenditures of royal family- top state officials and defence expenditures.

The royals are not ready to give up their luxuries and lavish life styles. Despite cutting the social spending, some people are questioning the Saudi backed takeover of English premier League club New castle United worth £300 million ($372 million).

The questions have also been raised on the government's multi-billion dollar push to host entertainment and sporting extravaganzas as part of economic diversification plans. The economic hardships could lead to increased discontent and anger among the sections of population.

Many royal princes are already under continued custody on the allegations of attempted coup against the king. The worsening economic situation could  further destablise the relations between different powerful factions of  Saudi royal family. 

As the citizens started to feel the real impacts of austerity measures and cuts, the economic policies and state spending will come under spotlight. Crown Prince Mohammed bin Salman's other ambitious plans to wean the economy away from oil remain vulnerable to austerity measures.

The Saudi rulers made the cuts on state subsidies and social spending which will directly affect the ordinary people. The 300% rise in the VAT will directly hit the ordinary citizens. All these measures and cuts will give $ 26.6 billion to the government. These cuts and austerity measures will deprive millions of state employees and ordinary citizens from crucial incomes. Their living standards will fall as the cost of living will balloon.

Many pro-royal experts will argue that there is no other choice but to make these cuts to reduce state expenditure and huge deficits. But they are wrong. The desired amount could have been saved by cutting the non-essential defence expenditures. Saudi Arabia spends approximately 8.8% of its GDP on arms and the kingdom has promised to buy more U.S. weaponry than its forces can likely operate.

This year, the government is expected to splurge 210 billion Saudi riyals ($56 billion) on the military, higher than the amount allocated for education (192 billion riyals) or health and social development (147 billion riyals).

A report by the Stockholm International Peace Research Institute (SIPRI) on global military expenditures for 2018 stated that Saudi Arabia was No. 1 in highest military spending as a percentage of GDP.

There is no doubt that the kingdom’s prioritisation of military-related spending over other budget sectors has been greatly influenced by its 4-year campaign against the Houthis in Yemen, a war that is believed to be costing Saudi Arabia billions of dollars every year.

SIPRI said Saudi Arabia was a distant third in 2018 in overall military expenditures at $68 billion, just ahead of India ($67 billion) and France ($64 billion). Russia was sixth, having dropped out of the top five ranking for the first time since 2006, with military expenditures of $61.4 billion.

Saudi Arabia can save billions of dollars with just ending war in Yemen and to reduce the defence expenditures.
                                                          Khalid Bhatti