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Saudi king to focus economic policies on creating jobs
March 1, 2015, 1:23 pm

Saudi Arabia's newly appointed King Salman Bin Abdulaziz Al Saud has pledged to maintain foreign and economic policies, focusing on creating jobs and multi-billion dollar infrastructure projects aimed at preventing tumbling oil prices from causing social tensions or undermining business confidence.

King Salman inherits an economy that faces its biggest challenge since the global financial crisis in 2009. The world's top oil exporter relies on hydrocarbons for 90 percent of its state revenues, but oil's slide is slashing that income. The government has projected a record $38.7 billion budget deficit for 2015 and if Brent crude stays around $50 a barrel, the shortfall will be much bigger.

The new king must juggle that fiscal picture with pressure to bring down the unemployment rate — 11.8 percent last year, according to official data — as he manages the political transition in the months ahead.

Economists also believe that Saudi Arabia, facing the risk of years of cheap oil ahead, no longer has the leeway to throw money at problems in the way it once did. The 2015 state budget, announced last month, envisaged a nominal spending increase of 0.6 percent from the 2014 budget plan - the smallest rise in over a decade, and a small cut in inflation-adjusted terms.

But heavy state spending is expected to continue on job creation, education to achieve a competitive workforce, upgrading the healthcare system, and massive projects such as the $22.5 billion plan to build a metro rail system in Riyadh by 2019.

Many of these projects are central to the long-term challenges which King Salman will face that include curbing rampant growth in domestic oil consumption so that it does not eat up supplies available for export, and diversifying the economy beyond energy so that Saudi Arabia can survive when its crude runs out decades from now.

A tantalizing possibility is that King Salman could now accelerate some economic reforms that have been proceeding only slowly, and introduce new ones that have been on hold because of their complexity and political sensitivity.

For example, the kingdom has been opening up to more competition in some sectors such as aviation, and moving towards making its legal system faster and more transparent in handling commercial cases. It will begin opening its stock market to direct foreign investment this year.

Authorities have so far largely held off on other reforms, such as cutting huge energy subsidies to reduce waste and ease the burden on state finances. They have been considering for years whether to tax undeveloped land, in order to force more land into the market and ease a housing shortage.

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