A senior adviser to Saudi Arabia’s deputy crown prince, Mohammed bin Salman, has revealed the level of inefficient government spending in the kingdom prior to the collapse of the oil price.
In an interview with Bloomberg, Mohammed Al Sheikh, Prince Mohammed’s financial adviser said: “My best guess is that there was roughly between $80-100 billion of inefficient spending every year,” amounting to about a quarter of the entire Saudi budget.
Al Sheikh did not elaborate as to where the money had been wasted.
Saudi government spending rose significantly between 2010 and 2014, thanks to an oil price that stayed largely about $100 a barrel.
The kingdom’s total planned government expenditure rose by 7 percent in 2011, 19 percent in 2012, and then by another 19 percent in 2013, before growing by 4.3 percent in 2014.
Al Sheikh told Bloomberg that prior requirements that the king must approve all contracts over SR100 million ($27 million), were expanded in steps to SR500 million until the government suspended the rule altogether.
The advisor also said that Saudi Arabia would have gone “completely broke” in just two years if spending had continued at last April’s levels.
However, he also said that the kingdom was now in a far better position, thanks to a raft of reforms initiated by Prince Mohammed. Those include a 25 percent cut in budgetary spending, plans to introduce value-added tax (VAT), the removal of some subsidies and the issuance of sovereign debt.
As a result, the drawdown on foreign exchange reserves held by the Saudi central bank has slowed in recent months. From an average of $30 billion a month in the first half of 2015, foreign exchange reserves fell by $9.4 billion in February – the smallest drop in four months.
On Monday, the deputy crown prince will announce details of the long-awaited National Transformation Plan, which is expected to outline how the kingdom plans to diversify its economy away from oil.For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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