When King Salman bin Abdulaziz al-Saud inherited the throne, he gifted his people, big time: all government employees received two months’ salary bonuses, altogether an estimated an estimated $32.2 billion.
“The bonuses are the usual practice when there’s a succession, ” Steffen Hertog, associate professor at the London School of Economics, told the Financial Times.
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He noted that “some were doubting whether it would happen because of the oil price situation.”
The Ashmore Group estimates that 80 percent of King Salman’s gift spending will come out of the current budget, with $5.3 billion coming in capital expenditure over the next few years.
The entire sum comes to 4.4 percent of Saudi Arabia’s estimated GDP for 2015. But if they need a little more, there’s the savings account.
Over the past ten years, Saudi Arabia has accumulated $730 billion in reserves. Now they have a bit less.
And if the new king doesn’t get a hold on his spending, say the experts, he’ll find himself deep in debt faster than a suburban family trying to make ends meet in tough times.
The late King Abdullah received great praise for the little bit of progress he introduced in economic reform. He opened Saudi Arabia to foreign investors and discouraged the importing of cheap foreign labor, so Saudis could go for those jobs. But those reforms were not cheap, and now, with oil stuck at $50 a barrel for the foreseeable future, experts are questioning whether the new king can afford them.
Saudi Economy Minister Mohammed al-Jasser has been telling foreign investors that “the reforms under King Abdullah will continue unabated under King Salman.”
But the kingdom has been poring out vast amounts of cash not only to keep its government employees happy, but also to avoid its own version of an Arab Spring.
The Saudi used huge sums of money to buy stability four years ago, while the Arab world was raging: $130 billion, according to official figures. And, regardless of the price of oil, the king will have to continue spending on buying both security and friends.
This is what many experts have been wondering: can the kingdom afford paying for reforms and for safety out of the same, very large but still limited savings account?
The IMF has been cautioning all the gulf states to reduce spending growth. They want to avoid a disaster in the desert, obviously. They are especially against wage increases and subsidies, which the new king knows cannot be avoided.
Governor of the Saudi Arabian General Investment Authority Abdullatif al-Othman expects to bring in foreign capital to finance transportation and health projects at $140 billion. There are other projects in the works, some in collaboration with Dubai.
But with the main Saudi product remaining at less than half of what it was worth such a short time ago, there’s no telling how much of King Salman’s plans will get off the sandy ground.
