Saudi Arabia To Increase Defense Spending

Saudi Arabia is increasing its defense budget by 27% over the next five years, which will put the Gulf giant on track to become the fifth largest arms producer by 2020. What makes it even more notable, beyond the raw numbers involved, is the context under which it is happening: global oil prices are in the gutter. The Financial Times elaborates:

“IHS says Saudi defence spending will be $48.7bn in 2015, a 2 per cent contraction over last year. It will rise slightly to $49.5bn next year before jumping to $52bn in 2017 and reaching $62bn by 2020. Riyadh’s defence budget had been rising by 19 per cent a year since the Arab uprisings of 2011 placed Gulf governments under domestic political pressure.

The International Monetary Fund forecasts that Riyadh will face a 20 per cent fiscal deficit this year as strong spending outpaces government revenue. The Saudi government is tapping foreign reserves to finance the deficit, and they fell by $11.6bn to $683bn in April, down by about $60bn from last year’s peak. The IMF forecasts Saudi economic growth will decline from 3.5 per cent this year to 2.6 per cent in 2016 as spending is adjusted to lower revenues.”

The Gulf monarchy has traditionally spent its money to win friends through well-funded religious foundations and charities. Coupled with the generous (strategic) financial investment in countries such as Pakistan and Jordan, Saudi Arabia has been able to wield enormous soft-power influence in the region. But with the Iranian nuclear negotiations moving towards a conclusion, Riyadh has come to the conclusion that soft-power alone will not suffice. Instead we now see King Salman dipping into the Kingdoms ample financial reserves to strengthen Saudi “hard-power” capabilities, costs be darned.

At the beginning of the year, we nominated Saudi Arabia as one of the world’s seven great power on account of their capabilities and means to shape their regional environment and exert global influence. This latest report shows that the Kingdom has no intention of abdicating their spot on our list any time soon.

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