Saudi Reforms to Hurt Expats, Higher Earners Most

Overall consumer spending in Saudi Arabia is expected to take a hit over the next couple of years as a result of the economic reforms being implemented in the Persian Gulf kingdom, according to new research.

Al Rajhi Capital has calculated in a new research note that consumer spending is likely to remain flat until 2020, increasing just 3.8% over the period to reach SR977 billion ($260.5 billion), with expat spending hit the hardest, Arabian Business reported.

It said that without reforms, the total consumer spending would have grown by up to 9% in the same period, reaching SR1,025 billion.

The government has rolled out multiple reforms over the last few months such as VAT, an expat levy, electricity/gasoline price hikes, the Citizen Account program and a cost of living allowance.

Al Rajhi Capital said despite the expected fall in consumer spending, the majority of Saudi households would be shielded from the impact of the reforms.

“Our calculations suggest that 70% of Saudi households are shielded from the impact of reforms during 2017-20, primarily due to the support of Citizen Account program,” it said.

The kingdom’s Citizen’s Account program is intended to ease the impact of belt-tightening measures and is a part of Crown Prince Mohammed bin Salman’s Vision 2030 plan to move Saudi Arabia beyond oil.

The research added that the additional benefit from cost of living allowance (applicable only for 2018) means that 90% of Saudi households will be shielded this year.

However, while Saudi household spending will remain healthy; non-Saudi household spending will shrink, the research said.

It also noted that high income Saudi households which account for up to 40% of total consumer spending by Saudis, will be most prone to consumer spending decline, as they receive no government support.