Riyadh prepares to submit draft on economic reform strategy

15 March 2016

Kingdom’s Deputy Crown Prince expected to announce details of economic transformation in April

Saudi Arabia’s Ministry of Economy and Planning is due to submit the much awaited draft of National Transformation Plan (NTP) to the royal court, by the end of March as the kingdom sets national priorities to reduce its dependence on sale of hydrocarbons for revenues amid slumping oil prices.

The draft will be submitted to the Deputy Crown Prince Mohammed bin Salman al-Saud, who, after a review, is expected to announce the details in April, according to two people familiar with the matter.

Saudi Arabia’s minister for Economy and Planning Adel bin Mohammed Faqih has led the drafting of the programme in consultation with several other ministries and government bodies, the people said, asking not to be identified as information isn’t public.

The chairman of state-owned oil producer Saudi Aramco, is expected to lead the implementation of government’s economic reform agenda, He will have the status of a state minister as head of NTP, the people added.

The programme outlines government expenditure cuts, spending plans for projects that will still go ahead, a list of the state entities to be privatised and a schedule pinning down the timelines for the sale of these assets to private investors. NTP, among other policy decisions, will also identify the Aramco assets, in which the government plans to sell stakes to the public, according to the people.

The minister of economy and deputy minister for Economic Affairs Ahmed ben Habib Salah didn’t respond to a request for comment sent to the email addresses listed on the ministry’s website.

Saudi Arabia, the biggest GCC economy, expects a SR326bn ($87bn) budget deficit in 2016. The kingdom has embarked on spending cuts to compensate for shrinking oil revenues. The SR444.5bn oil proceeds in 2015, represented 73 per cent of the kingdom’s total revenues. This is 23 per cent less than the income generated from the sale of crude a year earlier.

The government has resorted to drawing down on the foreign reserves and tapping the Saudi banks and financial institutions with local currency bonds to plug the budget deficit. Riyadh has now invited banks to submit proposals to extend it a five-year $6bn-$8bn loan, its first bid to tap international debt market for more than a decade.

Sweeping changes

Riyadh is implementing sweeping changes as it struggles to diversify its revenue streams. It is looking to introduce reforms that include taxation, a review of subsidies and the limiting of public sector wages. The kingdom’s reform agenda, starting this year, also includes privatising a range of sectors and economic activities, the Finance Ministry said in a 28 December press release without identifying the sectors or activities.

The government is looking to monetise value locked into some of its crown jewels including Saudi Aramco by selling shares to the public, the deputy crown prince told English-language weekly newspaper The Economist, in an interview in January. The UK’s Capital Economics estimates Aramco could be worth anything from $1 trillion to upwards of $10 trillion. However, Amin Nasser, CEO of Aramco, later said the government will maintain a controlling stake if it decides to sell shares in the world’s biggest oil producer.

State-controlled Saudi Electricity Company (SEC) is also undergoing a restructuring programme. This involves the creation of four generation companies, an independent system operator, and separate transmission and distribution companies, which will lead to potential IPOs of the new subsidiaries, Abdullah al-Shehri, governor of Saudi Arabia’s Electricity & Cogeneration Regulatory Authority (Ecra), told MEED in an exclusive interview.

Riyadh is also considering plans to turn Saudi Ports Authority into an autonomous body, which will enable the state-owned port operator to independently raise funds through the debt market or float its shares on the Saudi Stock Exchange (Tadawul), three sources familiar with the situation told MEED 1 March.

A MEED Subscription...

Subscribe or upgrade your current MEED.com package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.