The Saudi budget forum: What I learned and what I didn’t learn
A decade ago, it was not even thought possible to have a forum to discuss the Saudi fiscal budget with all ministers from finance to energy.
What I learned from the forum that was held on Dec. 13 to discuss budget 2022, however, was less than what I did not learn about how each ministry is functioning.
Starting with what I learned, I gained a perspective into the internal functions of the Finance Ministry, and how the government forecasts its revenues.
I learned a lot from the finance and energy ministers as the two ministries are the backbone of the entire budget plan. The latter generates the major chunk of the Kingdom’s income, while the former spends it.
The other thing I learned is that Saudi Arabia is very bullish on oil prices in the future. The entire budget for 2022 sends a bullish signal to the market as the Kingdom is expecting higher revenues on the back of an expected increase in oil demand and prices.
The Energy Ministry holds a very optimistic view not because the world needs more oil but because the US and other consuming nations are taking a hard stance against investments in hydrocarbons.
This hostility against oil forced the Saudi energy minister to warn of a potential energy crisis. Yet, isn’t it puzzling to see a country that depends on oil for living concerned about high oil prices in the future!
Well, I can understand that concern because Saudi Arabia and the Organization of the Petroleum Exporting Countries will be asked to pump more oil to compensate for the fall in production from other countries and that’s a burden no one would like to bear. Also, Saudi Arabia sells its oil mainly to the developing nations and such a situation will affect their ability to pay their oil bill. Lastly, a healthy economy means healthy oil demand, and high oil prices can affect the health of the global economy for sure.
Now let’s turn to how different ministries interact with the Finance Ministry. From the outside, we think that the entire process of funding state projects is very smooth and simple — one person approves a project, and the check is sent to the Finance Ministry for the disbursement of funds.
What I understood from the forum and the discussion among the ministers is that this isn’t the case. The Finance Ministry asks them to provide more paperwork to receive the required funds even if a minister gets initial approval from the state leaders.
A good example of that was the story of the finance minister asking the minister of communication and information technology to provide a study of social and economic impact when the latter approached him to provide the largest stimulus package in the history of the sector to expand broadband services to more than 3.5 million homes.
There is an internal system and clear governance as it seems so things aren’t as easy as people might think. I don’t know how things were before 2016, but it’s very clear to us that with the new government, governance and internal procedures are a top priority. This is important because most developing nations are accused of running a loose fiscal system guided by crony capitalism.
I also learned that the Finance Ministry peculiarly calculates future oil prices by reviewing historical price fluctuations and movements. I find it hard to predict oil prices beyond five years and now when looking at past movements, the whole model is becoming very complex. Why does the ministry do this? The minister says it adds a lot to the accuracy of the forecast.
Another important thing to hear at the forum was the speech and discussion with the governor of the Public Investment Fund, the Kingdom’s sovereign wealth fund, and the owner of all the big projects at home.
However, I think that this forum does not do the PIF, as it’s known, any justice. First of all, the PIF is not part of the fiscal budget system. It feeds on surpluses and also has huge investments in almost every big company in the country including Saudi Aramco. It even went on and created 47 new companies since 2016.
The PIF has its funds and spends the money without consulting the Finance Ministry. Secondly, the PIF deserves an annual forum of its own along with all of its affiliates and subsidiaries.
We must understand that there is a big difference between investments (represented by the PIF), and spending (represented by the Finance Ministry). The budget forum made us understand the spending of the ministry but we have little knowledge of how the PIF and all its projects function. It would be a dream to see an annual PIF forum, a dream that I hope will become a reality.
The other thing and perhaps the most important one that I didn’t learn through the forum was how ministries will spend their budget in 2022 and how they spent it in 2021.
It’s informative to hear a minister showcasing what he has done in a year, but that shouldn’t be how things are conducted at a budget forum. Such a platform should be utilized to make us understand what the ministers are going to do with the allocated funds and how the spending will impact the economy and job creation.
Most of the targets stated are for 2030 and I’m not sure how many of them will be there by that time. So instead of taking us on a trip through time, the budget forum should be used to tell the citizens of the Kingdom what they are doing next year to help the economy grow and what we should expect in terms of jobs and other deliverables.
I wish that next year the budget forum isn’t a platform to reflect on long-term plans, but an event where we can feel and learn about the immediate impact of all the ministries on the lives of the people of Saudi Arabia.
• Wael Mahdi is a senior business editor at Arab News and co-author of “OPEC in a Shale Oil World: Where to Next?”