Complex Made Simple

Saudi making revisions to National Transformation Plan?

A recent Bank of America Merrill Lynch Global Emerging Markets Weekly report, authored by the bank’s MENA Economist Jean-Michel Saliba, revealed that Saudi Arabia is potentially revising its National Transformation Plan (NTP) 2020.

The NTP was developed to help fulfill Saudi Arabia’s Vision 2030 and to identify the challenges faced by government bodies in the economic and development sectors.

The NTP and Saudi Vision 2030 have been spearheaded by now Saudi Crown Prince Mohammed bin Salman.

Key highlights

Financial Times (FT) article is suggesting that Saudi Arabia is working to redraft the National Transformation Plan (NTP) and a final draft of NTP 2.0 would be presented to the Crown Prince in October.

The NTP 2.0 would be “more focused”,  the article mentions, adding that there are no indications that the NTP’s key targets would be changed.

Unclear right now

It is tough to judge the impact of the redrafting without knowing the changes to be made.

The NTP was mostly focused on the diversification agenda (rather than on fiscal reforms) and was challenging in terms of timeline. A delay would allow more time for ministries to meet their targets. The article suggests privatisation goals (outside of the oil sector and Saudi Aramco) could be pushed back, which could reflect that more time is needed for execution and for preparing privatisation targets to float.

What’s in the plan?

The NTP does include some fiscal reforms, although in a somewhat sketchy form (domestic energy price reforms, increase in non-oil government revenues, wage bill).

These reforms were since moved out from the NTP and included in the government’s Fiscal Balance 2020 program. So the article’s suggestion of revisions to NTP targets may still be consistent with continued fiscal reform plans and may not involve a revision of fiscal plans.

If delayed, then what? 

A delay to fiscal reforms would be in line with our bank’s view that the government wants to achieve an uneasy balance between austerity and activity and try to support growth.

The bank has already suggested that a private sector support package was needed to prevent a sustained recession in the non-oil sector and shield it from the impact of fiscal reforms, and that this would come at the cost of compromising the target of achieving fiscal balance in 2020.

As domestic energy pricing reform would be supportive of privatization of energy assets, a first phase of subsidy reform could still take place by year-end.

All in all, depending on the impact on the fiscal reform plans, fiscal consolidation timeline could be extended but growth could find a better footing.