RIYADH – Over the past few weeks, the government of Saudi Arabia has been engaged in an unprecedented strategic policy review that could have ramifications for every aspect of the country’s social and economic life. The full details are expected to be announced in January, but it is already clear that the kingdom – the world’s nineteenth-largest economy – is in desperate need of far-reaching reform.
There are two reasons why change has become urgent. The first is the dramatic drop in global oil prices, from above $100 per barrel in the middle of 2014 to below $40 today. With oil exports accounting for nearly 90% of government revenue, the pressure on Saudi finances has been intense; the fiscal balance has swung from a small surplus in 2013 to a deficit of more than 21% of GDP in 2015, according to projections by the International Monetary Fund.
The second reason is demographic. In the next 15 years, some six million young Saudis will reach working age, putting enormous pressure on the labor market and potentially doubling its size.
It is easy to be pessimistic about this confluence of circumstances, and many international commentators are. But there are also good reasons for optimism, most notably the new Saudi leadership’s recognition of the challenge and the possibilities that addressing them could create.