As business activity picks up after the summer, we offer a summary of some of the stories we're following at the Arab Bankers Association.
Saudi Economic Policy Making: An Interview with Hugh Miles
ARAB BANKER: Are you seeing any changes in economic and financial policy in Saudi Arabia as a result of continuing low oil prices and as a result of the leadership changes that followed the accession of King Salman in January 2015?
HUGH MILES: The big change in Saudi economic policy came under King Abdullah in November 2014 when the Kingdom increased oil production in the face of dropping oil prices, rather than decreasing it, as it nearly always had done in the past. Since then the price of oil has fallen more than 40% and the oil market has become saturated, leaving Saudi Arabia with a big fiscal deficit. In fact, in October the International Monetary Fund said the Kingdom could run out of financial reserves in five years.
In response to low oil prices, the Kingdom has introduced a number of urgent economic and financial policy changes: cutting spending, issuing debt, dipping into its large foreign reserves and delaying major projects. New departments have been set up to try and tighten oversight of public spending. However, the root causes of the problem remain, and with many analysts expecting the oil price to sink further, further measures will probably be needed, including raising the price of domestic oil products and diesel, introducing new taxes, and privatising major state companies.
ARAB BANKER: Who is leading the formulation of economic and financial policy in the Kingdom?
HUGH MILES: It is often difficult to tell, from the outside, how Saudi policy-making works and how strategic objectives are formulated and prioritised. The King and the senior princes around him are the key decision makers, rather than ministers and statutory authorities such as the Central Bank. However, it's known the King is not well, so Crown Prince Mohammed bin Nayef and Deputy Crown Prince Mohammed bin Salman have emerged as key decision makers.Prince Mohammed Bin Salman oversees the Committee of Economic Development which is the main economic policy-making body in the Kingdom and this is the body charged with overseeing the new oversight committee set up to regulate government spending.
ARAB BANKER: Do you see differences of opinion with the Saudi government about the direction that the Kingdom should take on economic and financial matters?
HUGH MILES: Since oil accounts for at least 80% of Saudi revenue, economic policy relates closely to oil policy and this has historically been decided by the Saudi establishment as a whole, in liaison with the US. Any differences of opinion have taken place behind closed doors. But in recent months, as the economic challenges have unfolded, differences of opinion have emerged for the first time within the regime itself, with one Saudi prince going so far as to call for the whole senior leadership team to be replaced. The prince says he has the backing of most of the royal family and the ulama (religious authorities), and has based his call for change on the current leadership’s alleged economic mismanagement, corruption and the costly war in Yemen. Meanwhile there is little public criticism within the Kingdom itself about economic and financial policy, even from Saudi economists.
ARAB BANKER: There has been a lot of press coverage about the Central Bank's declining financial reserves and also the withdrawal by the Saudi government of funds invested abroad. Do you think the Saudi authorities are concerned about the fall in their financial reserves?
HUGH MILES: Publicly the Saudi government has used its media empire to try to present the current economic challenges in a more positive light, pointing out that the Kingdom still has enormous international reserves. However, I know that there is mounting tension internally. I have seen secret internal documents detailing instructions to all ministries to halt official purchases of cars and furniture, and cut travel budgets and infrastructure spending.
ARAB BANKER: Earlier this year we saw the Saudi stock exchange being opened, cautiously, to foreign investment. Do you think we will see further opening of Saudi financial markets?
HUGH MILES: Saudi Arabia has been described as the investors’ last frontier and officially the Saudi government welcomes outside investment in the financial sector. The chairman of the Capital Market Authority said last month he is open to relaxing rules on foreign investors in the stock market and that he hopes that Saudi Arabia will be included in the MSCI Emerging Market index by 2017, as opposed to the Frontier Index in which it sits at the moment. If this is to happen, the market will have to become more open and transparent. It’s early days, but so far we’re still waiting to see movement in that direction.
Hugh Miles is an award-winning investigative journalist specializing in the Middle East and North Africa. He has worked for a wide variety of media, including the BBC, CNN, the Guardian, the Daily Telegraph, the London Review of Books and many more. He is the author of two books, Al Jazeera: How Arab TV News Challenged the World and Playing Cards in Cairo. He lives in Cairo.
Al Shafie Miles is a Cairo-based business intelligence consulting specialising in the Middle East and North Africa. It has particularly strong contacts among the Middle East diplomatic community, both local and foreign. In addition to a specialist newsletter about Saudi Arabia, Al Shafie Miles also manages Arab Digest, a private members club made up of a few hundred elite people worldwide.For a one month free trial of Arab Digest’s daily newsletter please visit https://arabdigest.org/visitors/free-30-day-trial/
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