Dubai: Saudi Arabia’s structural reforms plan outlined in the National Transformation Plan (NTP) and Vision 2030 underlines a massive privatisation programme to be implemented on an urgent basis. Recent reports suggest there could be change in the NTP timeline that could slow down these plans.
“Although it is still early to judge the success of the structural reforms which have been announced, ... a key litmus test will be the privatisation programme including the sale of 5 per cent of Aramco expected in 2018. Import substitution policies and local content targets in areas such as defence procurement could stimulate activity, but will take time,” said Garbis Iradian, chief economist at the Mena of Institute of International Finance (IIF).
To stimulate the private sector, improve productivity and reduce the fiscal burden of supporting inefficient enterprises, the authorities have already privatised few state-owned enterprises and are now working on Public-Private Partnership programmes (PPPs).
The NTP was mostly focused on the diversification agenda and was challenging in terms of timeline. The plan targets the private sector to play a stronger role in the economy, including on the vital employment and investment fronts. The plan looks for the private sector to create 450,000 jobs by 2020. However, this has been recognised a difficult target at a time of tight fiscal policy and subsidy reforms.
A delay in the NTP timeline would allow more time for ministries to meet their targets. A recent report in Financial Times suggested that privatisation goals could be pushed back, which according to economists could mean that more time is needed for execution and for preparing privatisation targets to float.
“In the event [of a revision of the NTP], a delay to fiscal reforms would be in line with our view that the government wants to achieve an uneasy balance between austerity and activity, and try to support growth. We had already suggested that a private sector support package was needed to prevent a sustained recession in the non-oil sector and shield it from the impact of fiscal reforms, and that this would come at the cost of compromising the target of achieving fiscal balance in 2020,” said Jean-Michel Saliba, Mena economist at the Bank of America Merrill Lynch.
Depending on the impact on the fiscal reform plans, the fiscal consolidation timeline could be extended giving priority to private sector-led growth. However, tight government spending suggests non-oil economic activity is likely to remain fragile. Non-hydrocarbon real gross domestic product (GDP) growth stood at 0.6 per cent year on year in the first quarter of 2017.
In the context of a potential revision in the NTP, analysts say a gradual and realistic implementation of privatisation will help the kingdom regain it scompetitiveness through the implementation of deep structural reforms, including steps to build a new, more diverse growth model.