- Mohammed bin Salman outlines reforms in Economist interview
- Plans to introduce VAT, sell state land, hold Aramco IPO
Saudi Arabia is poised for a Thatcherite revolution, according to the young prince in charge of its economy, who outlined plans to slash energy subsidies and invite private investors into industries including the world’s biggest oil company.
In an interview with the Economist magazine, Prince Mohammed bin Salman, the king’s son and deputy crown prince and believed to be in his early 30s, said the government will scale back its role in health care, education and some areas of the military. It’s seeking to reduce dependence on oil and offset the impact of slumping crude prices on a budget that posted a deficit of 15 percent last year.
The program, which the prince said could “most certainly” be compared to the U.K.’s 1980s economic overhaul under Margaret Thatcher, will have to be implemented at a time of mounting turmoil in the Middle East and economic strain in the kingdom, the world’s biggest oil exporter. It’s the latest evidence that Saudi rulers have abandoned their traditional caution since Prince Mohammed’s father, King Salman, ascended to the throne almost a year ago. In that period Saudi Arabia has become embroiled in a war in Yemen and a growing dispute with Iran, as well as pledging to tackle economic challenges that had been put off for years.
The kingdom will stop offering subsidized energy to all its population of 28 million, and instead introduce targeted assistance for poorer Saudis, expanding on the subsidy cuts announced last month in the 2016 budget, Prince Mohammed said. He said a value-added tax will be introduced by the end of this year or early 2017, though basic goods such as water and milk will be excluded. Officials have said the tax will be around 5 percent. Prince Mohammed said there will be no income or wealth taxes.
An initial public offering in Saudi Aramco, the world’s biggest crude producer, is under consideration and a decision could come within months, Prince Mohammed said.
He said the state has extensive holdings of valuable land that could be privatized, and said that assets worth about $400 billion will be transferred to state funds in the next few years and eventually offered in IPOs. Other opportunities to expand the kingdom’s non-oil economy include mining and tourism, he said. Prince Mohammed said the Saudi economy would benefit from a wider participation by women, who are subject to curbs including a bar on driving in the kingdom, which is governed by strict Islamic laws.
The prince also addressed the past week’s flare-up with Iran, which saw Saudi Arabia cut ties with its longtime rival after the kingdom’s embassy in Tehran was stormed to protest the execution of a Saudi Shiite cleric.
War between Saudi Arabia and Iran would be “the beginning of a major catastrophe in the region,” Prince Mohammed said, according to a transcript on the Economist’s website. “For sure we will not allow any such thing.”
The prince said that this month’s execution of cleric Nimr al-Nimr, an activist on behalf of the kingdom’s Shiite minority, was part of a legal process in which Sunni and Shiite defendants enjoyed equal treatment. He said Saudi Arabia’s military campaign in Yemen, where it’s fighting rebels said to have ties with Shiite-ruled Iran, is aimed at promoting a political solution.