Budgeting Problems in Saudi Arabia
Saudi Arabia is the first and only Gulf-region country that is in the G20 due to its prestigious economic ability in the entire Middle East region. The financial giant harbors the largest oil reserves in the world as its large crude oil capacity serves the country efficiently, while the surplus is exported to other parts of the world. Therefore, when this country’s oil price declines, its international social status and economic stability become significantly affected. In fact, Saudi Arabia’s enormous wealth allows it to design a lavish budget that comfortably covers all its citizens’ financial needs. Hence, their budget expenditure is extremely high, sales and salaries are not taxed, while valuable commodities like fuel and food are heavily subsidized. Evidently, since 2014, the prestigious oil prices started falling rapidly globally, a problem that has considerably affected the Saudi Arabian economic stability. Instead of designing and implementing a reasonable budget, this country continues to pamper its inhabitants and spends considerable wealth catering to their economic wellbeing. Therefore, to understand the budgeting problems, it is imperative to discuss the context of the Saudi Arabian budget, the causal factors of this delinquent, its effects on the nation, and suggest the way forward.
Saudi Arabia’s 2016 Budget
Saudi Arabia’s 2015- 2016 fiscal budget was released on December 28 amidst an economically constrained Saudi Riyal (SR). Evidently, this country formulated the normal traditionally high expenditure budget despite the real uncertainty in the crude oil market, which is the country’s prime source of wealth (Alturki 1). In fact, the budget was reduced by a small margin as the need to support the large economy became the priority of the financial document policy makers. From reliable sources, the 2016 budget spending was reduced by a mere fraction of SR20 billion. In fact, since 2015, Saudi Arabia has spent around SR860 billions, while in 2016, the country had a budget of SR840 billions (Habboush1). With a dwindling economy, this kind of spending is quite high, which is a clear sign that the government is still willing to support its economy despite inadequate revenues.
Another notable problem with the 2016 budget is that the government increased this year’s fiscal deficit to SR326 billion from 2015’s SR145 billion while only depending on the oil market, which has remained unstable globally with no signs of improving (Alturki 1). Notably, the military and other security services sectors were allocated with 25% budgeted capital, education was given 23% of the share, while the health and social welfare sector were given a total of 13 % of the government’s money. Due to this lavish allocation, Saudi Arabia’s revenues have decreased substantially to the extent of negatively impacting the growth margins of the country to as low as 2.3 percent from 2015’s 3.4% economic expansion rate. Concisely, the government designed a lavish budget with the explicit knowledge that its revenues would decrease further in 2016 to at least SR513.3 billion. In fact, the country went further to allocate the oil production sector with a total of SR183 billion for this year’s expenditure (Habboush 1). It is crucial for the Saudi Arabian government to realize that allocating more resources on some sectors will continually hurt its economic stability in the long run.
Moreover, Instead of Saudi Arabia sourcing its deficit capital from oil revenue, it goes on to provide that the reigning difference will be financed by international and domestic borrowing, a process that exposes the country to more debts. By so doing, Saudi Arabia continued to dwindle its economy, considering that it barely hit its revenue target of RS715 in 2015 but only managed to collect RS608 billion, which is only 73% of the country’s total income (Habboush 1). Moreover, instead of Saudi Arabia formulating internal legislative policies that source more funds, the budget planners of the 2015-2016 fiscal year only enacted small margin prices for oil products, electricity, water, ethane, gasoline, and gas subsidies. In addition, the gas was increased by 66 percent, a 50% rise in gasoline, while the ethane rose by 133% (Al-Khatteeb 1). In essence, for the local consumers in Saudi Arabia, the increment meant additional financial constraints, while the aspect globally is a minuscule margin considering the uncertain oil environment in the Gulf region.
Saudi Arabia is known to formulate lavish budgets, which right now are extensively hurting its economy and leading the country towards bankruptcy. The first factor that leads the country to design a problematic budget is the need to perpetuate its traditional culture of a welfare country. Therefore, each decision made by the government ensures to take into account the economic well-being of the 30 million Saudi Arabian citizens (Drew 1). In fact, the top officials in this country are champions in creating and nurturing a welfare state culture, considering that upon ascension to power in 2015, King Salmon gave 32 billion US dollars as subsidies and bonuses to the people of Saudi Arabia to celebrate his success.
Another causal factor in designing a problematic budget is the existence of an incautious government to increased population growth rate in this Gulf economic giant. In fact, the Saudi Arabian administration blindly subsidizes its inhabitants without knowing that it has a population growth of 2% per annum since from 1960, where there were only 4 million people, but today the state has 30 million inhabitants (Drew 1). Also, Saudi Arabians are not subjected to taxation in their personal incomes and sales processes, which are prime revenue sources to a country (Drew 1). With this kind of a population and lavish living, this state will continue designing a problematic budget, an issue that requires immediate attention before it is too late.
Saudi’s problematic budget is also caused by its need to keep the Arab world intact. In most cases, Saudi Arabia is expected to stabilize a failing Middle East region actively but at the expense of its financial wellbeing. For instance, when Saudi Arabia went into war with Yemen in 2014, the aftermath was high alarming deficit returns in seven years since the 2008 financial crisis. After the Yemen civil war, Saudi’s Riyal devaluated considerably and reduced the living conditions of the people to the extent of losing its prestigious position as a macro economy in the Arab region (El-Katiri 1). Notably, for Saudi Arabia to curb radical groups in other bordering states, it has to spend more on supreme military weapons and security details, as seen in its 2016 fiscal budget.
Lastly, Saudi Arabia is forming a problematic budget because its new policy makers have little experience in the dynamic petroleum market,, both internally and externally. For instance, in the ongoing hiccup of oil instability, Ali Al Naimi,, who is a veteran minister in the oil industry, was replaced by a newbie leader Khalid Al Falih who lacks in both experience and skills on how to deal with the failing petroleum market in Saudi Arabia and on the international platform (El-Katiri 1). With this kind of massive inexperience, Saudi Arabia’s policymaking platform continues to make wrong decisions for the country, especially in sensitive areas such as the budget making process.
Consequences of Bad Budgeting in Saudi Arabia
Saudi Arabia is languishing in an unstable economy due to the formation and implementation of a problematic 2016 fiscal budget. First, Saudi Arabia is rapidly depleting its financial reserves. The available foreign exchange in Saudi Arabia has dropped substantially since 2014. In fact, as of 2015, the Saudi Arabia reserve capital had fallen by $109 from $732-$623 (Al-Khatteeb 1). In 2016, things have worsened as the$ 623 amount has declined by another 100 billion dollars, now at $570 billion (El-Katiri 1). Therefore, there is a high possibility that if proper legislative policies are not formulated in the next five years, Saudi Arabia will soon go bankrupt.
In addition, due to declining oil prices and low revenues, the Saudi Arabian government has resulted in drastically cut down the number of government employees, their bonuses, and salaries. The rapid move was pushed by the need to reduce spending on the government’s side in a bid to stop interfering with the remaining reserve funds. For that reason, at the beginning of September, the Saudi Arabian government publicly announced that the minister’s salaries, that of the consultative assembly, and civil servants would be slashed in a certain percentage (Hubbard 1). Ministers now have a 20% less pay in their salaries and must cover their personal telephone bills. Members of the Shura Council have a 15% cut in their incomes, while they have to cater for their house rents and car revenues (Hubbard 1). Subsequently, government employees will no longer receive annual leave payments or overtime bonuses. Cutting down public spending does affect not only those employed in government but also the youth, as there are no longer job opportunities in the public sector.
Saudi Arabia also sees an increased inflation rate as private companies and retail businesses have slowed their growth rate since 2015 (Hubbard 1). Mainly, private enterprises like those in the construction sector have closed down due to inadequate capital to pay their workers while catering for water, electricity, and fuel prices. Moreover, the labor market in Saudi Arabia continues to battle with tighter regulations, thus forcing employers to retrench more people. Increased revenues have made it hard for private organizations to conceive wise investment decisions due to tightened liquidity, high capital, and raised interest rates for acquiring loans (Reeve et al. 10). With this crisis, more immigrants from South Asian states like India Bangladesh,, and Pakistan are now stranded in Saudi Arabia (Reeve et al. 12). As such, the impact of foreigner’s leaving the country continues to affect its economic conditions as massive outflows in the saving sectors are being recorded in large amounts.
The Way Forward for Saudi Arabia
As a G20 nation, Saudi Arabia must design ways of improving its affected economic platform through its budget allocation strategic plans. For that reason, this state will reduce its exposure to a global economic instability, create new job opportunities, increased productivity, and expand the non-oil economic platform. Therefore, Saudi Arabia should first design a budget that prioritizes more on providing different legislation policies to integrate the youth fully with the state’s economic procedures (Al-Khatteeb 1). Improving the well-being of the young generation requires the country to develop their education and technical skills of this demographic population.
Therefore, the number of universities and other learning institutions should be increased to help nurture well-educated youths whose knowledge has been attained through well collaborated, developed, and extensively researched procedures. As a result, the unemployment rate will reduce substantially as the skilled and unskilled labor acquired will be applied in both the private and public sector as the latter is inflated with older employees in the region (Al-Khatteeb 1). It is crucial to note that if youths are not integrated into the economy, Saudi Arabia will continue to deteriorate economically and security-wise as more of them will engage in radical activities and continually wage wars on their neighboring countries or the state itself.
In addition, Saudi Arabia is required to start prioritizing its domestic affairs more than how it overindulges in other countries internal conflicts. For instance, at this time and industrial age, Saudi Arabia should refrain from designing ineffective social, institutional, and social policies. For that reason, Saudi Arabia should grow its SME sector and support it through various initiatives to design effective ways for emerging microfinance groups to access credit through extended loans from the central bank (Qu et al. 92). In essence, the well-developed credit corporations will make it possible to develop the private sector, as more people become entrepreneurs due to the attractiveness of this department.
Moreover, this Gulf giant should stop funding or providing military support for warring countries, failing economies, or rebel groups like in Yemen and Egypt. Instead, this is a crucial economic time for Saudi Arabia to consider its personal wellbeing and formulate policies to regulate the dwindling financial state. Indeed, Saudi Arabia should immediately stop using its currency reserves to fund military expeditions while the needs of its rising population are neglected today and in future.
Saudi Arabia can also strengthen its trade sector by increasing Arabian integration within the other Middle East region states. For that reason, state regulations constraining free trade with some countries should be revised to accommodate all the surrounding areas as a way of cultivating effective trade agreements (Qu et al. 92). Moreover, Saudi Arabia should actively engage in fostering the rapid implementation of the 2008 Gulf Common Market Launch whose primary goal is to ensure that a variety of factors are integrated to help ease the movement of goods, services, and products throughout the Middle East. In this case, more focus will be geared towards building economic synergies to uplift the county’s economy.
The above discussion has shown that Saudi Arabia has a budgeting problem, ranging from lavish expenditures, massive subsidies on essential commodities, inadequate revenue collection, and increased deficits despite a dwindling economy. The causal factors leading to this problematic allocation of funds are based on the country’s need to uphold a welfare nation and incautious policymaking processes. In addition, the state has an uncertain budget as it struggles to keep the Middle East economies intact but lacks experienced decision makers who can navigate an unstable oil production industry. For that reason, Saudi Arabia’s financial reserves have rapidly depleted, while government workers have faced significant cut downs in their salaries or bonuses, making the country exposed to high inflation rate. Despite a problematic budget, Saudi Arabia can resolve its economic problem by designing a budget that covers several areas. The financial giant policy makers can create youth prioritized legislations, formulate effective social-economic policies, improve the private sectors, and strengthen free trade procedural agreements with other countries.
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