Starting in 2010, a wave of political protests swept across Arab countries in the Middle East and North Africa, in what is now referred to as the Arab Spring.
Saudi Arabia was able to avoid regime change and ultimate turmoil; some believe that sizeable wage increases and promises of more public goods and services were largely responsible for keeping the royal family in power. However, this strategy of appeasing politically conscious citizens with increased public goods and services may not work so well in the near future.
One prevalent practice within this regime has been subsidizing a variety of daily needs, such as electricity, oil, etc. As a result, citizens pay below-market prices for gasoline and electricity, with the cost mainly shouldered by the government. In fact, according to Numbeo.com, as of 2014, gasoline in Saudi Arabia costs a mere 15 cents per litre on average!
The royal family’s popularity depends mainly on the subsidies it provides.
An article was published in Al-Monitor near the end of 2013 that highlights the impacts of Saudi Arabia’s energy subsidy program. Specifically, it estimated that the expenditures funding the program constitute approximately 10 per cent — a huge portion — of the kingdom’s GDP.
Unfortunately, the low prices these subsidies result in has lead to high rates of energy consumption, and a rapid increase of the country’s population within all of its sectors. To make matters worse, the country relies heavily on fossil fuels for the bulk of its energy needs.
Assuming that rapid population growth continues in Saudi Arabia, it is reasonable to suggest that underfunding of public services could become a critical problem for the survival of the royal family in the near future.
The royal family’s popularity depends mainly on the subsidies it provides; straining to deliver at least satisfactory levels of subsidies, as well as education, healthcare, housing, etc., to its citizens could lead to its ultimate downfall.
Consequently, I think the Saudi government will have to rely on different forms of taxation to provide public goods and services to the Saudi people. This could pressure the royal family to introduce a form of democracy to the country, as the people are likely to demand more say in government accountability with respect to government revenues.
Subsidization exemplifies poor financial management and bad economics, and is a critical bargaining tool between citizens and what I would consider an authoritarian government. External shocks to subsidy programs may break this fragile social contract and lead to political instability, which could result in similar revolutions to those in the Middle East’s near past.