A shaky throne: Saudi Arabia’s deep recession and collapsing oil prices

The economic growth in the Arab littoral nations of the Persian Gulf has been extremely sluggish, particularly since the Covid-19 breakout in early 2020, aggravating the mainly oil-dependent state economy. Even in neighbouring nations where tourism is a significant source of income, like the United Arab Emirates (UAE), the pandemic has led to a period of business closures and recession, which has harmed the Emirati economy. Due to its economic slump, Saudi Arabia has lately caught the attention of international financial institutions and the media. The reign of Salman bin Abdulaziz and his son, the country’s ambitious Crown Prince Muhammad bin Salman, is far from the country’s economic apogée in the 1990s and 2000s. The Saudi economy has suffered a series of negative economic growth seasons in recent years, according to financial observers. The most significant causes of Saudi Arabia’s poor economic development include the sharp decrease in oil prices, the inability of OPEC Plus members to achieve an agreement, and the effect of the Covid-19 pandemic. Saudi Arabia’s economic calamities are compounded by its ongoing war in Yemen, support for terrorist organizations in the Middle East such as ISIS, and a dispute with Russia and Iran over oil pricing. These conditions have pushed the oil-rich Arab country into such a financial and economic abyss that it has had to depend on foreign financial institutions to remain afloat. The Finance Minister of Saudi Arabia also said that the nation must take serious measures to reduce government spending. Mr Al-Jadaan recently stated that Riyadh is scheduled to borrow 220 billion Saudi Rials ($59.3 billion) this year. Meanwhile, Saudi Arabia faces a massive budget deficit as a consequence of plummeting oil earnings and a moribund economy. As a result, Saudi authorities have raised the value-added tax from 5 per cent to 15 per cent beginning in July 2020, to offset declining oil prices. Riyadh approved the fiscal year 2021 budget in December, with a credit of 990 billion rials ($263.91 billion), a decline of nearly 7 per cent from the previous year. To offset falling oil prices, Saudi officials have increased the value-added tax (VAT) from 5 per cent to 15 per cent starting in July 2020.

Furthermore, Saudi authorities have decided to cease paying monthly stipends to employees working in the government sector. As a consequence of the increasing unemployment rate, the Saudi government has decided to adopt several measures to reduce the foreign labour force, including job localization and the use of Saudi citizens in a range of sectors. However, the government’s policies of rapid localization of light employment have resulted in market disasters and aggravated working conditions to the point that job prospects have become extremely narrow. Other non-oil Saudi sectors have suffered too, with unemployment hitting 12.3 per cent in 2012 and projected to reach 22 per cent by 2030. Saudi Arabia has also been afflicted by an abnormally high poverty rate. Saudi Arabia’s poverty rate is estimated to be between 15 per cent and 25 per cent, according to unofficial figures. According to the Washington Post, between two and four million Saudis earn less than 530 Saudi Riyals ($17 per day) a month, despite rising unemployment and poverty rates, while the Saudi government conceals sociopolitical truths from the nation.