Saudi Arabia’s population could put greater pressure on the Kingdom’s fiscal policy and increase government debt as it ages over the next three decades, ratings agency Standard & Poor’s has warned.
Saudi Arabia’s population is disproportionately young now, with over 70% of all Saudis under 30 years old. But even the smaller percentage of the population that is aging into retirement years will be costly for the Kingdom’s cradle-to-grave social welfare system. With half the state budget already reserved for public-sector salaries, caring for Saudi Arabia’s population as it ages may be the largest threat to the government’s ambitious Vision 2030 reform plans, announced this spring.
“This could lead to a rapid increase in Saudi Arabia’s net debt ratio to 340 per cent of GDP by 2050 if governments were to take no further policy action,” said S&P Global Ratings analyst Trevor Cullinan, according to a report in Gulf News. “The sovereign credit ratings on Saudi Arabia would decline to speculative-grade in such a no-policy-change scenario, which is not our base case.”
The half of Saudis that serve in the public-sector are entitled to a pension and medical care after retirement, according to Saudi Arabia’s Public Pension Agency. Agricultural workers, fishermen, household workers, family labor, and foreign workers are not covered by the Public Pension Agency, which pays out 9% of a worker’s gross earnings in some cases.
Surging health costs may also be a challenge for Saudi Arabia. Age-related government expenditure on pensions and health care “could surge to 14 per cent of GDP by 2050 from 6 per cent now, leading to a ballooning of the net debt-to-GDP ratio to 340 per cent of GDP by 2050 if the government fails to amend its policies,” Standard and Poor’s said according to the National.
“Owing to growth in the young population, subscribers to Saudi Arabia’s generous pension system have been outstripping growth in the number of beneficiaries, contributing to the overall financial health of the system,” S&P said. “However, over time, we believe Saudi Arabian governments will likely consider demographic reforms to the system to ensure its sustainability.”
