The cabinet in Saudi Arabia has approved significant economic reforms to steer the country away from its historical dependence on petrodollars.
Saudi Cabinet Approves Reforms to Move Away From Oil Dependence
Up to 70% of the country’s revenue comes from oil but Saudi Arabia has been greatly affected by falling oil prices.
The reforms will result in selling of shares in Aramco, the state-owned giant oil company to set up a government wealth fund.
The Deputy Crown Prince Mohammed bin Salman admitted that the country was addicted to oil profits.
Salman, who announced the Vision 2030 blueprint, outlined the cabinet-approved plan, which would see less than 5% of Aramco’s shares sold, with the plan valuing the company at $2.5 trillion. Up to 2 trillion of the IPO proceeds will be allocated to the sovereign wealth fund.
The blueprint also indicated that the country would establish a new visa system that would enable Arabs and Muslims to work in the country for the long-term.
Additionally, the reforms would see the diversification of the Saudi economy to include military production and mining of minerals. The plan also proposes greater absorption of women into the workforce.
Oil has turned Saudi Arabia into an economic giant but the petrodollars come at a cost. The price volatility of crude oil can have a significant impact on the economy in the long term.
While Saudi Arabia will not seek help from the IMF like other oil producing countries, the Saudi petrodollars are thinning out. Given that up to 70% of the country’s revenues come from oil, the effects of the falling oil prices cannot be ignored for long.
Oil price are lower than half of $115 per barrel, the highest price recorded in June 2014. However, the prince asserted that the reforms would be independent of the prices.