Late Monday, the Saudi Arabian cabinet gave its approval to the National Transformation Program, a plan aimed at diversifying the kingdom’s economy and steering it away from oil.
The plan which is aimed at boosting the country’s non-oil revenue to US$141 billion, by the year 2020, was proposed in April by Deputy Crown Prince Mohammed bin Salman. The prince said his hope was that in 20 years the country would no longer be oil-dependent.
Saudi Arabia will maintain its output of 12.5 million barrels per day until 2020.
The kingdom is dependent on oil for 80 percent of its revenue and has felt the sting that has come with falling oil prices. A 70-percent dip in prices from 2014-2016 resulted in a US$98 billion budget deficit for the kingdom last year. Related: Does Iran Have The Upper Hand In OPEC Oil War
In response to this situation, the Saudi government has issued domestic bonds, cut spending and raised the domestic cost of fuel, water and electricity.
Last month, the International Monetary Fund (IMF) predicted slow growth for the country this year, due to the effects of cheap oil.
While the country still has nearly $600 billion in foreign-exchange reserves, it has burned through US$140 billion in reserves since the end of 2014. The IMF has warned the Saudis that they could eventually run out of cash. In April, the kingdom raised US$10 billion via a loan from local banks, and in 2014 it tapped the local bond market for at least $4 billion. However, this marks the first time Saudi Arabia has issued international bonds which could total between US$10 and US$15 billion. Related: U.S. Crude Exports Hit 96 Year High
Part of the divestment plan would involve the sale of less than 5% of state-owned Saudi Arabian Oil company, and the transfer of the company’s ownership to the sovereign-wealth fund.
According to the Wall Street Journal, Saudi Arabia also plans to develop its mining and tourism industries, adding approximately 450,000 private sector jobs.
By Lincoln Brown for Oilprice.com
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