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Saudi financial crisis will spark resistance to plundering of state

The state is asking Saudis to tolerate austerity measures but what about the billions of dollars spent on the Saudi royal family, grand projects and arms?
Saudi Crown Prince Mohammed bin Salman attending the launch of the ABB FIA Formula E Championship in Diriyah district in the capital Riyadh on 22 November 2019 (AFP)

On Monday, Saudi authorities announced unprecedented measures to salvage its finances from an imminent meltdown, caused by mismanagement rather than simply the coronavirus pandemic or the collapse of oil prices.

From July, an increase in VAT from five percent to 15 percent and the suspension of the cost of living allowance (a monthly 1000 rials/ $266) are both desperate attempts to rescue an economy that has been plundered for generations. 

The ultimate solution

This move is just the beginning as the government may resort to the ultimate solution, by slashing jobs in the Saudi public sector, cutting the salaries of existing state employees or simply finding itself unable to pay them at all.  

The so-called Saudi social contract is believed to rest on a bargain. The government provides extensive services. In return, citizens continue to pledge allegiance to the leadership

With oil prices showing no sign of improvement, and the coronavirus still raging across the globe and inside the country, it is not certain that the new increase in VAT and the suspension of living allowance will generate enough savings for the state to compensate for serious losses. However, both new measures are desperate attempts to shore up revenues at a time when the main commodity, oil, is increasingly becoming cheaper than water in the desert kingdom.  

The political implications of the crisis surpass these limited and desperate measures that in themselves will never be enough to halt the slide towards the unknown.   

The so-called Saudi social contract is believed to rest on a bargain. The government provides extensive services such as jobs in the public sector, education, housing, and health. In return, citizens continue to pledge allegiance to the leadership, accepting their total political marginalisation, disenfranchisement, and even repression in the name of security and affluence. 

This social contract was based on wishful thinking rather than an accurate assessment of Saudi state-society relations. Since the discovery of oil in 1933, Saudis never stopped challenging their government even at times of affluence and abundance.

Ideology vs economy

Throughout the last century, most opposition to the Al-Sauds was articulated in ideological terms not especially connected with the domestic economic wellbeing of the people. Both Saudi Arab nationalists and Islamists launched ideological challenges to the state based on a discourse that touches on the identity of the state rather than its economy or finances. 

Throughout the last century, most opposition was articulated in ideological terms not especially connected with domestic economic wellbeing

Nationalists challenged it on the basis of its connections with imperialist and Western projects, while Islamists preoccupied themselves with questions of authenticity, Islamic heritage and commitment to global Islamic revival, seeing oil in the hands of the state as an enabling mechanism to pursue such projects.

Under such grand ideological projects, and while the state continued to pay citizens’ salaries and provide sub-standard services, the mismanagement of the economy continued and was elevated to new levels under the current leadership of the Crown Prince Mohammed bin Salman. 

However, with renewed economic hardship and falling living standards, brought about by the squandering of wealth in the pursuit of futile projects, and the imposition of new taxes, critical voices may be alerted to new conditions that touch upon their own life.

Saudi citizens in a supermarket in Riyadh on 2 April (Reuters)
Saudi citizens in a supermarket in Riyadh on 2 April (Reuters)

How long can Saudis remain silent over their own impoverishment while at the same time they see the perpetuation of elite privileges? It is time for Saudis to wake up and focus on their own destiny under a regime that erodes their own economic security while it continues to spend billions on its own dubious projects.  

Where did all the money go?

Domestically, from Vision 2030, National Transformation Programmes, to futuristic cities, billions of dollars have been wasted without any form of accountability. Saudis are certain to lose their enthusiasm for grand mythical projects that are the product of a sinister propaganda machine and the grandiose illusions of the crown prince.  

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Now the leadership is asking Saudis to tolerate austerity measures. But what about the substantial monthly salaries that Al Saud princes and their collateral branches receive from state coffers? Not to mention other perks and privileges that aim to keep the large pool of princes preoccupied with hunting trips, luxury holidays in European resorts, the purchase of football stadiums, and real estate at home and abroad.

The leadership remains silent over the secret cost of such salaries that thousands of idle princes receive every month simply for belonging to the chosen family, whose Al-Saud lineage entitles them to a vast monthly sum, drawn from state coffers without even appearing on the balance sheet or in the budget.  

Regionally, spending billions on derailing the uprisings in several Arab countries and launching a war in Yemen only accelerated the depletion of wealth. Massive spending on arms that neither provides domestic security nor guarantees peace in a turbulent region remain beyond criticism or scrutiny.

A new era

Saudi spending on regional conflicts only exacerbated local rivalries and empowered those Arab leaders who are determined to deprive their citizens of a decent life. Saudi money contributed to not only wasting its own wealth but also to perpetuating corrupt, authoritarian rule elsewhere in the region. 

As Saudis are subjected to new taxes and cuts, it is time for them to shift their focus away from issues of identity toward their own destiny at a time when the leadership continues to plunder the state for its own circle's self-enrichment and on regional projects that only serve its narrow interests.

The gradual erosion of state services and salaries, coupled with rising consumer prices, and the prospect of prolonged poverty, will be the spark for a new era of opposition politics ushered in by the disastrous mismanagement of the state under its current leadership. 

The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Eye.

Madawi al-Rasheed
Madawi al-Rasheed is visiting professor at the Middle East Institute of the London School of Economics. She has written extensively on the Arabian Peninsula, Arab migration, globalisation, religious transnationalism and gender issues. You can follow her on Twitter: @MadawiDr