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Macro: charting the way forward
Jean-Michel Saliba
MLI (UK)
jean-michel.saliba@baml.com

The Saudi Vision 2030 and National Transformation Plan (NTP) present a
comprehensive roadmap for change and augur for committed diversification efforts, in
our view. Announced reforms can help sustain higher potential growth if fully realized as
new sectoral sources of growth are developed. Positively, the NTP borrows elements
from other successful strategic case studies. Still, we find a number of targets
ambitious or unrealistic on the fiscal and diversification fronts, and the sequencing and
details of the fiscal measures are left nebulous.

In terms of the other pillars of the macro view, namely energy and Fx policy, the NTP
presents a mixed picture, in our view. Energy policy is likely to be less aggressive, as the
NTP suggests a constant oil production capacity. To remain consistent with the targeted
government debt accumulation path, we estimate that oil prices have to average at least
US$50/bbl in 2016-20 along with no growth in spending (excluding the additional cost
of NTP initiatives). Partial implementation could require oil prices of cUS$65/bbl.

Fiscal consolidation remains imperative to support the Fx peg, in line with stability and
economic imperatives. However, as diversification progresses, the case for increased Fx
flexibility to support competitiveness could likely gradually take shape. Policy-making
growth-focused plans may conflict with needs to deflate Fx demand in the economy.

Towards better governance
The comprehensive economic blueprint unveiled by the Saudi Vision 2030 and the
National Transformation Plan (NTP) confirms the economic reform credentials of the
current administration. It is likely to improve government culture, accountability and
transparency, in our view. The NTP will be implemented across 24 government bodies
and has been presented through a number of press conferences with high-level
ministerial presentations. The Governance Framework details steps to institutionalize
and coordinate implementation through restructuring the government. It proposes a
number of committees and bodies to report to the Council for Economic and
Development Affairs (CEDA). It also introduces an escalation mechanism to rapidly
resolve bottlenecks, which could see matters escalated to CEDA in 42 days.

A wide-ranging policy-making reshuffle
In line with ongoing Saudi Vision 2030 implementation efforts, a wide-ranging
restructuring of the Saudi Cabinet and government bodies was announced in May to
drive change in the government. King Salman issued 51 Royal Decrees restructuring the
Cabinet, various government bodies and appointing a number of officials into various
government roles. A statement concurrently issued by the Royal Court suggested these
changes are in line with the recently announced Saudi Vision 2030 and aim to support
its implementation. This follows from the January 2015 restructuring of the bodies
affiliated to the Council of Ministers, which saw the creation of CEDA and the Council
for Political and Security Affairs. We list a few major changes below.

New Oil Minister represents technocratic experience and policy continuity
The appointment of Khalid Al-Falih to the Ministry of Energy, Industry and Mineral
Resources is not surprising, given that former Minister of Petroleum and Mineral
Resources Al-Naimi has previously suggested he was approaching retirement due to old
age. Al-Falih’s appointment continues the tradition of non-Royals heading the Ministry,
while simultaneously holding the Chairmanship role of Saudi Aramco. Furthermore,
according to local press, Al-Falih appears close to Deputy Crown Prince Mohamed bin
Salman, and his appointment likely confirms the recently assertive Royal influence over
energy policy, in our view. New Minister of Energy, Industry and Mineral Resources Al-
Falih’s past official pronouncements are consistent with stable Saudi energy policy, in
our view.

Merrill Lynch
GEMS Paper #26 | 30 June 2016
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