Investors piled into Saudi’s international markets debut in October 2016, playing particularly heavily in the 30 year portion of the triple tranche offering, essentially betting on a bright future for the Kingdom.
Saudi’s Vision 2030, in its own words an “ambitious but achievable” project, was a cornerstone of KSA’s roadshow presentation, and convincing enough to draw a whopping $67bn of orders.
Saudi has certainly made gains in addressing a future with oil revenues of less than half of what they were before the oil price crash in 2014. Its current account was in surplus of $6.2bn in the first quarter of this year, up from a deficit of $20.3bn in Q1 2017, and according to reports, its plans to privatise a stake in Saudi Aramco are still on track.
Now Saudi is said to be delaying some reforms by as much as a decade, and is expected to publish a revised plan in October. Very little detail is available, but the general narrative, according to Capital Economics, is one which suggests rising opposition in religious and royal circles to a more liberal Saudi Arabia.
If Capital Economics’ read is correct, it hints at increasing opposition to Crown Prince Mohammed bin Salman, a key architect of Vision 2030, and an individual identified as friendly to western ideas of a more open society both socially and economically.
The research firm believes that if MbS were to be removed, his Vision 2030 plans could be pushed aside, leaving the country’s’ commitment to reducing its reliance on petrodollars in doubt. The possible longer term impact of this would be a more closed economy and sluggish long term economic growth.
But the NTP is only part of a broader reform package which is certainly ambitious, but to some fails to address some of the key issues at the heart of Saudi’s staid economy – reforming its education system and improving the business environment, and of course, equal rights for women.
What is important is less the revisions themselves, and more the sense that Saudi itself may not want to change.
These concerns are yet to play out in the price of Saudi’s international bonds which were largely flat this week. But with market conditions so strong, any sell-off would likely to have been short lived.
Nevertheless, Saudi may find itself more exposed to selling when global monetary policy eventually shifts, and investors, returning from their heady days of yield hunting in Tajikistan, notice that Saudi is heading in the wrong direction.