Saudi Arabia's government is due to unveil a long-term economic blueprint for life in a low-oil world, but key structural challenges are set to test the Kingdom's resolve.
Titled "Saudi Vision 2030," the plan, due for release later on Monday, is expected to announce regulatory, budget and policy changes that will be implemented over the next 15 years to make the Kingdom less reliant on crude.
As the world's largest oil exporter, the bulk of Riyadh's state revenues come from energy exports. But with crude prices extending declines—the per-barrel price of global benchmark Brent is down 60 percent since the rout's start in June 2014—the nation logged a record $98 billion budget deficit for 2015.
Officials are already taking action to diversify revenue sources before existing state coffers get depleted. This month, Deputy Crown Prince Mohammed bin Salman said that ownership of the Arabian American Oil Company (Aramco) and some other national assets would be transferred to a public fund that invests cash from the country's oil and gas operations into other sectors.
Analysis from McKinsey suggests the Kingdom could double gross domestic product (GDP) growth from 3.4 percent in 2015 and create as many as six million jobs by 2030 by focusing on eight non-oil sectors, including manufacturing, mining, tourism, healthcare and finance.
But although Riyadh has been pursuing a diversification policy ever since its first Five Year plan in 1970, progress has always been hindered by structural blockages, which are still in place today, warned Steffen Hertog, associate professor at the London School of Economics.
One key obstacle was the fact that almost everything in the Saudi economy was directly or indirectly fed by state spending, he said. With nearly two-thirds of the workforce in the public sector, the majority of household demand comes from Saudis who are paid government salaries. The total size of wages paid to Saudi households from the private sector amounts to just 4 percent of GDP, he said.