The IMF has given Saudi Arabia’s reforms its seal of approval – while admitting that it doesn’t quite know exactly what they are.
Prince Mohammed bin Salman’s objectives are “bold and far-reaching”. But we must await the “supporting policies [that will] set out how these goals will be achieved”, the IMF says.
Mohammed Alyahya, a consultant and researcher at a Saudi think tank, writing in the Financial Times, argues that nit-picking through the specifics misses the point. “Visions are, by their very nature, idealistic and ambitious”, he writes, while what is “more important even than the detail of this vision is the team behind it”, a rare illustration of meritocracy in the gerontocratic state.
No one quite knows what the political reception to these reforms will be, both within the Saudi royal family, and in the Saudi public at large.
So it’s plausible to see Prince Mohammed’s debut TV interview as a stake in the ground, a declaration of the direction of travel, an attempt to secure popular support for changes that are likely to make at least some Saudis worse off.
There’s also good reason to think that Saudi Arabia is in a better short-term situation, but a worse long-term situation, than the sudden crash in oil prices might suggest.
At one point, advisers to Prince Mohammed were worried that the kingdom would run out of funds within two years. An IMF forecast garnered headlines giving the Saudis a little longer – five years.
But this was always misleading. The kingdom had virtually no debt, and slight changes to the rate of asset depletion would have had a major impact on the length of time it took to run down Saudi Arabia’s sovereign wealth. The kingdom does not have to take urgent action to avoid bankruptcy – it simply has to change its fiscal course.
The real challenge is long-term. McKinsey warns, however plausibly, of a demographic time bomb – that 6 million Saudi jobs will need to be created by 2030. By some measures, the kingdom’s dependence on oil has remained virtually unchanged over 40 years. A recent IMF paper shows how far the Gulf and the kingdom lag in terms of domestic higher education, business environment and exports in secondary or tertiary industries.
Vision 2030 is not urgent because low oil prices have eroded Saudi finances. It’s urgent because the economy hasn’t diversified. If the grand plan is filled out with specifics, then that is, as the IMF said yesterday, welcome.