Simon Henderson (2016) has referred to a British Ambassador who completed his tenure in 1984 defined the Kingdom of Saudi Arabia in terms of three “I’s”- Islam, insularity and incompetency. In governance, incompetency has been a festering issue for the kingdom. The Kingdom of Saudi Arabia never bothered to diversify its economy, exclusively funded by the oil revenues up to 88% of its total national income. The year 2014-15 brought bad omens, oil prices slashed near to collapse. Oil price per barrel was $110 in 2014. After two years it touched just $35. When oil prices fell in 1990, the kingdom borrowed massively to run the routine business. Again China rescued it in 2000s when commodity prices jumped and the oil prices paid back high returns.

The royal masters hardly heard the typical jargon of austerity measures. Government was surprised and had to declare huge budget deficit since 2007. It had to issue bonds and to swallow its foreign reserves. Brookings (2015) has come up with a much sombre prediction that the Kingdom may import oil by 2032. Balanced book keeping requires $106 oil price per barrel. Any price less than that is sure to devour the Kingdom’s foreign currency reserves. Moody’s has already rated Aa3 to the economy of Saudi Arabia. S& P took Saudi Arabia’s rating down to A-, noting ongoing oil prices slump is seriously harming to the country’s budget. Conversely, for the last seven years it had run average 7% budget surplus of the GDP. The Capitalist Review (2016) has quoted IMF that is bluntly predicting that Saudi Arabia may go bankrupt by 2020.

The kingdom has been massively aiding Egyptian economy previously. Saudi Arabia has recently refused to issue her more aid owing its own homeward concerns. Cash strapped Egypt has eyed a $3 billion aid plan offered by the World Bank. In the second week of April 2016, King Salman completed his four-day state visit of Egypt where he again pledged to invest billions of dollars and pouring of aid in Egypt. Both governments have agreed to build a bridge that will connect both nations through Red Sea and to raise pan-Arab defence force; both plans are sure to cost Kingdom more than to Cairo. According to The Economist 2016, the break-even oil price of Egypt is $63 per barrel whereas for Saudi Arabia and Kuwait it is $12 and $08 respectively. Is the Kingdom capable enough to fund Cairo despite low cost of oil production but of huge dual deficits at home?

For the fiscal year 2015, government expenditures reached $260bn, showed 13% more spending than the estimated one and registered $98bn deficit. The Kingdom’s 2016 budget predicts deficit of $87bn. The projected spending is $224bn and the revenues are at $137bn. The largest chunk ($56.8bn) went on military and security services, more than the 25% of the total and much higher than that the previous year’s. Regional tensions compel Saudi Arabia to prefer guns over butter. By 2020, its annual defence expenditures may touch $62bn. Naturally, depletion of foreign reserves is the biggest casualty that usually ignites capital flight. During 2015, Kingdom’s currency reserves were reduced $623bn from $ 732bn. If the current spending spree goes on, assuming budget priorities are put static, oil market conditions remained same, regional tensions do not escalate, kingdom’s reserves may grant it a fiscal buffer of five years at best.

Intrinsically generous kingdom has been offering $71bn subsidies on oil, gas, electricity and water to its masses. Under the 2016 budget, it has revised rates upward, on natural gas 66%, ethane 133% and on gasoline 50%. The Kingdom has used its coffers like kings used to do. It provided free healthcare, free schooling, no income tax, public pensions (90% of Saudis have state jobs), subsidised water/electricity. The increase in prices on domestic consumers is still low as compared with international market. The kingdom is one of the most water scarce countries not only of the region but also of the whole world, offering only 98 cubic meters per inhabitant per year. Most of the water is withdrawn from groundwater of which 57% is non-renewable.

The biggest problem to the national security is not of decline in oil prices, huge cost of subsidies, massive military spending but the unprecedentedly endemic unemployment of the youth. Though Kingdom is spending 23% of the budget on education yet unemployment is the biggest challenge to be dealt by any government. Pakistan’s spending on education is less than 3% of the GDP but unemployment has never been taken as a national challenge in Pakistan. Any economic instability in Saudi Arabia will have direct bearing on the economy of Pakistan. In Pakistan, the largest pie of the remittances come from the kingdom, which is around $6 billion for the last financial year. Pakistani workers registered in Saudi Arabia are 312,489, second largest diaspora after UAE, where they are 350,522 according the latest Pakistan Economic Survey. For the same financial year, remittances arrived from UAE are $ 5 billion. Ironically, Pakistan Economic Survey is still clamouring, “massive new construction plans in Saudi Arabia will also provide opportunities for Pakistani manpower”. Same document testifies that 46,000 Pakistani workers have reduced in 2015 from they were in 2013.

Saudi Arabia does not share statistical data generously. The Woodrow Wilson International Centre for Scholars conducted a recent study for Scholars apprises that 70% population out of total 30.8 million of the Saudi Arabia is under the age of 30 years. Unemployment rate runs in the region of 15-30 % by the government’s statistics. 37% of all Saudis are of 14 years old or younger. In order to provide jobs to the huge unemployed youth, government needs at least 3 million new jobs by 2020.

Though the cloud of the Kingdom’s economy is much grey yet the silver line is equally visible. The Middle East Eye (2015) has made a public a private letter circulated among royal members and written by a grandson of King Abdul Aziz Ibn Saud. It has blamed King Salman for all bad happenings within the kingdom. It warned, “We will not be able to stop the draining of money, the political adolescence, and the military risks unless we change the methods of decision making, even if that implied changing the king himself” In place of the archaic one, the government should put in place a skills based educational system. Job creation mechanisms with the close collaboration of private sector, a strictly merit based approach to the welfare system to gradually depart from the rentier model and to harness efforts to produce Shale deducted gas. Such points if implemented well may safeguard the future of the Kingdom. Under Transformation Plan 2020, the kingdom aims at developing alternative to oil and gas, drastically cutting public payrolls, doubling jobs for the Saudis, establishing charter schools and transforming public health care into insurance based, privatisation of state owned Aramco, power stations, telecom and airline services. If Byron says, “adversity is the first path to truth” then truth must precede adversity. Economic prudence must replace self-defeating rhetoric here in Pakistan and in the Kingdom. Working under bad times is normal in Pakistan but is abysmally abnormal in the Kingdom.

The biggest problem to national security is not of decline in oil prices, huge cost of subsidies, massive military spending but the unprecedentedly endemic unemployment of the youth.