The American Interest
Analysis by Walter Russell Mead & Staff
Saudi Budget Shows the Fear

Saudi Arabia’s budget has grown by 58 percent since the Arab Spring, with massive welfare and public spending driving the growth.

Even as popular uprisings rocked neighboring Bahrain and Oman and toppled an ally in Egypt, the richest gulf monarchy remained unscathed. But rising housing and food prices, youth unemployment, and other expensive problems are forcing the kingdom’s hand this year—to the tune of $219 billion. If Mubarak had that kind of money, he would still be in power today:

Creating jobs for its young, growing population, 70 per cent of whom are under 30, is a matter of national security. Saudi officials have complained that terror groups such as al-Qaeda often prey on resentful young, unemployed Saudis.

This year, the country will increase spending on education, healthcare and social benefits by 21 per cent and 16 per cent respectively. The finance ministry said in a statement that the new budget would focus on “investment programmes that enhance strong long-term sustainable economic growth and employment opportunities for citizens”.

Amazingly, the Saudis are still expected to run a surplus, thanks to record-high oil prices and their ability to ramp up production from their massive reserves.

But this is not a long-term solution. As the FT report notes, oil-funded government spending comes at the expense of developing other sectors of the economy that could provide growth and employment. And with oil prices expected to dip at some point as the energy revolution takes hold in North America, Saudi Arabia may soon find that it can no longer spend with impunity without breaking the budget.

The Saudis are already looking for non-oil investments. But growing domestic unrest and a shifting energy landscape are changing what had for decades been a pretty cushy world for Saudi leaders. The population and its demands are growing faster than Saudi’s oil income, and the country has not yet figured out how to develop a non-oil economy that can take up the slack. At some point, buying domestic stability will cost more than the kingdom’s rulers can afford. Nobody knows when that day will come, but come it will, and when it does stability in Saudi Arabia will be a thing of the past.

Published on January 4, 2013 3:17 pm