World Economy

S. Arabia Wasted $100b/Year

S. Arabia Wasted $100b/Year S. Arabia Wasted $100b/Year

A senior adviser to Saudi Arabia’s deputy crown prince, Mohammed bin Salman, has revealed the level of inefficient government spending in the kingdom prior to the collapse of the oil price.

In an interview with Bloomberg, Mohammed Al Sheikh, Prince Mohammed’s financial adviser said: “My best guess is that there was roughly between $80-100 billion of inefficient spending every year,” amounting to about a quarter of the entire Saudi budget. He did not elaborate as to where the money had been wasted.

Saudi government spending rose significantly between 2010 and 2014, thanks to an oil price that stayed largely about $100 a barrel.

The country’s total planned government expenditure rose by 7% in 2011, 19% in 2012, and then by another 19% in 2013, before growing by 4.3% in 2014.

Al Sheikh told Bloomberg that prior requirements that the king must approve all contracts over SR100 million ($27 million), were expanded in steps to SR500 million until the government suspended the rule altogether.

The advisor also said that Saudi Arabia would have gone “completely broke” in just two years if spending had continued at last April’s levels.

However, he also said that the kingdom was now in a far better position, thanks to a raft of reforms initiated by Mohammed. Those include a 25% cut in budgetary spending, plans to introduce value-added tax, the removal of some subsidies and the issuance of sovereign debt.

As a result, the drawdown on foreign exchange reserves held by the Saudi central bank has slowed in recent months. From an average of $30 billion a month in the first half of 2015, foreign exchange reserves fell by $9.4 billion in February–the smallest drop in four months.

On Monday, the deputy crown prince will announce details of the long-awaited National Transformation Plan, which is expected to outline how the kingdom plans to diversify its economy away from oil.

  Revising Subsidies

Saudi Arabia is working to soften the impact of subsidy cuts announced earlier this year, the prince said recently.

“Unsatisfactory water tarrifs” are a prime focus following a 400% to 500% increase in bills, Bloomberg reported.

Low to middle income Saudis are the focus of government efforts to provide them with added cash, and reverse a previous system, where 70% of subsidies benefited the wealthy, the prince said. “We want to exert pressure on wealthy people, those who use resources extensively,” he said.

A recent survey found that 86% of Saudi youths believe electricity and fuel should be subsidized by the government. This follows last month’s water price increase which spurred a burst of complaints reported in local media.