Daily Times

Saudi Arabia, the oil kingdom, has never been a normal state. Named after Ibn Saud, the ancestor of the ruling family, the founder of the modern Saudi dynasty, the Kingdom of Saudi Arabia was run on an unwritten social contract between the ruling family and its subjects. The state ensured a cradle-to-grave social welfare system; in exchange, the population was expected to be loyal, without having a representative system.

This social contract is now under threat. Facing persistently low oil prices, Saudi Arabia’s almost one-product economy is faced with immense challenges. Last year, Riyadh ran an unprecedented budget deficit of $98-billion (U.S.). This year, the deficit forecast is $87-billion. Its foreign-exchange reserve base is dwindling – from a peak of $737-billion in August, 2014, to $555-billion in August, 2016.

This is in sharp contrast to how things were a quarter-century ago, when I first landed at the old Dhahran airport. The Persian Gulf war had just ended. U.S. Marines were still roaming the streets of Al-Khobar and Dhahran. Fast-food chains were springing up, initially to meet the tastes of the mainly foreign troops stationed in the kingdom. The Dhahran International Hotel, which served as the media centre in the war, was still bathing in the glow of bygone days. It was a tax-free economy, no income tax, no sales taxes. Inflation was in check. A can of Pepsi or Coke cost about 25 cents in 1991. Life was easy.

No longer. Saudi Arabia has been forced to change course. Austerity measures abound. A value-added tax, once unthinkable in the kingdom, takes effect in January, 2018. An income tax on expatriate income is reportedly in the cards. The salaries and perks of ministers, members of the powerful Shura Council and government officials have been slashed. Saudi Arabia has even switched to the Gregorian calendar to be able to pay civil servants less; the Gregorian year is 11 days longer than the Islamic calendar that used to be the basis for paying civil servants. As the Custodian of the Two Holy Mosques, Saudi Arabia had long taken pride in the fact that it did not charge Muslim pilgrims. That, too, has changed. Except for first-time pilgrims for hajj or umrah, the kingdom has levied an entry visa fee equivalent to about $530.

Entry visas will also cost more for all other travellers, including expatriates living and working in the kingdom. Prices of utilities are rising, and gasoline prices were increased in the last budget. The government also recently unveiled hefty fines for serious traffic violations; running a red light will cost the equivalent of about $1,600. The tight fiscal scenario has also forced the kingdom to scrap development projects worth more than $20-billion. Saudi Aramco, the state-owned oil company, is expected to go public soon. To shore up its finances, Saudi Arabia is raising $10-billion from a consortium of global banks – the first international debt issuance in 25 years. Last year, the kingdom tapped the international bond markets. Times have definitely changed. This is not the oil kingdom I once knew. This is a different Saudi Arabia, and the population is not used to it. The social contract made between the rulers and the ruled is under strain. It could have wider consequences, bringing to the fore the very stability of the kingdom in the longer run. Riyadh has long presented itself as an island of stability in a very unstable region. That could be in question now.