UBS, the world's largest global wealth manager, has said thatcurrent fiscal measures deployed by Saudi Arabia should help ensure a sustainable economic future for the country in the medium term.
Following a recent assessment by the bank's Chief Investment Office, UBS said in a statement that the Gulf kingdom has implemented several measures to protect fiscal balances from the global oil price drop.
It said government spending was cut by 15 percent in real terms in 2015, and a further cut of 16 percent is envisaged for this year.
Going forward, UBS noted that several measures will likely be implemented to raise the share of non-oil revenues, such as the introduction of VAT in the GCC region.
The Kingdom also announced its ambitious development plan 'Vision 2030' in April, which aims to reduce the kingdom's dependence on oil, boost the private sector's role in the economy, lower national unemployment, and raise non-oil revenues almost four-fold to about 20 percent of GDP by 2020.
The share of nationals in total labour is also projected to increase from 44 percent in 2014 to 60 percent by 2030, with most of the new jobs being in the private sector.
However, UBS warned that even lower oil prices might pose a risk to reform implementation, saying geopolitical risks could distract the government from much-needed reforms domestically.
Jorge Mariscal, emerging markets chief investment officer at UBS Wealth Management, said: "The key to ensuring that Vision 2030 is achieved is to guarantee that nationals are equipped with the right qualifications to make them competitive in the private sector job market, while absorbing talent transitioning from the public sector.
"Following the current fiscal consolidation and other proposed reforms, the kingdom's finances should find a more sustainable footing in the medium term. This is despite declining oil revenues impacting fiscal and external balances and a surge in public spending.
"Government level reforms, including closure of a number of overlapping councils, commissions and committees, should benefit the economy, reducing red tape and making the government smaller, more efficient, and more accountable."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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