While Saudi Arabia's economy has remained largely stagnant and cash reserves have depleted a whopping US$150 billion due to the dramatic drop in oil prices, Saudi Arabia is hardly bankrupt. The country's annual gross domestic product (GDP) growth was only 0.8 percent between 2003 and 2013, less than most emerging economies. Saudi Arabia however has recently attracted large foreign invest to reinvigorate and modernize it's economy since it's 2016 announcement of Vision 2030, a financial rescue plan to revolutionize the economy by ending its dependency on oil.
The plan seeks to reduce the role of the public sector and bureaucracy while simultaneously empowering the private sector to become the main employer and vehicle for economic growth. The plan calls for the creation of a huge sovereign wealth fund to be funded by an unprecedented initial public offering (IPO) of a 5% stake in Aramco. Central to the agenda is “Vision 2030”, an initiative to transform the Saudi economy through privatization and restructuring, in the hope of lessening its reliance on oil production.
Three years after the Vision 2030 economic blueprint was announced in Saudi Arabia, the first truly measurable impacts of the plan are becoming apparent. Over the past 6 months, confidence in the Saudi economy has been boosted by significant developments and project announcements that lend substance to the prospect of meaningful economic diversification within a reasonable timeframe.
The opening up of Saudi Arabia’s leisure and entertainment sector is perhaps the most substantive development to date, having paved the way for the establishment of a cinema industry, mixed-gender sporting events, music concerts and the unveiling of the Qiddiya entertainment city megaproject. The removal of certain travel and civil restrictions on women in late August has added to the sense of change in the air, even if the full effect of the move remains to be seen. Vision 2030’s main attraction is “Neom”, a 26,000 square kilometre city to be built on the coast of the Red Sea, near the border with Egypt. Saudi Arabia will front $500 billion to support Neom’s construction, with the hope of attracting other investors from around the world.
On its face, this all sounds very exciting but previous efforts by the Saudi government cast serious doubt on whether the project will succeed. What makes Neom, and Vision 2030 generally problematic is that it’s a top-down, centrally-directed plan — an attempt by the Saudi government to steer the economy in a specific direction.
The IMF was wrong in it's prediction. While Saudi Arabia has been down in recent years due to the declining price of oil, Saudi Arabia is hardly out and is looking for a big bounce back in it's economy with major changes to it's economy and society.