Saudi Arabia’s King Salman Shakes Up Government Ministries
Changes coincide with a plan to reduce dependence on oil and boost foreign investment
RIYADH—Facing low oil prices and diminishing foreign-exchange reserves, Saudi Arabia’s King Salman has shuffled top policy makers, including his long-serving oil minister and central-bank governor.
The sweeping changes announced Saturday coincide with a plan to reduce Saudi Arabia’s dependence on oil and boost foreign investment, as well as other sources of revenue such as tourism. The plan, announced last month by the king’s 30-year-old son, Deputy Crown Prince Mohammed bin Salman, marks the kingdom’s most ambitious effort yet to overhaul its economy and shift away from oil, which accounted for more than 70% of government revenue last year.
Saturday’s shuffle was also the latest in a rapid wave of changes led by King Salman and his son since the king ascended to the throne in January 2015. The government has slashed its spending and announced cuts in subsidies for fuel, water and electricity.
While many of these changes were long overdue, the prolonged period of cheap oil and an employment rate of 11.7% has put more strain on the state’s finances and added a sense of urgency to the monarchy’s actions.
“The changes are natural, given the economic shifts announced by Prince Mohammed bin Salman in April,” said Simon Kitchen, strategist at Cairo-based EFG Hermes.
The kingdom is expected to announce a detailed package of reforms in late May or early June.
Oil minister Ali al-Naimi , who has served in that position since 1995, was replaced with Khaled al-Falih, chairman of the national oil company Aramco. The ministry has also been renamed to become Ministry of Energy, Industry and Mineral Resources. Mr. al-Naimi will become an adviser to the royal court.
Mr. al-Falih had served until Saturday as health minister, before being replaced in the shuffle with Tawfiq al-Rabia, the former minister of commerce. New ministers for transportation, hajj, and social affairs were also appointed.
In a key change at the central bank, Governor Fahad al-Mubarak was replaced with Ahmed al-Khelaify, who has been serving as the bank’s deputy governor for research and international affairs.
Mr. al-Mubarak had come under intense pressure in recent months amid fast dwindling foreign-exchange reserves and rising bets against the local currency’s peg to the U.S. dollar.
The riyal is fixed at roughly 3.75 to the dollar, but one-year forward contracts hit multiyear highs in the past months on speculation that the kingdom will be forced to let go of the nearly 30-year old peg to better manage a fiscal deficit that widened to a record of nearly $98 billion last year.
A sharp fall in the price of oil since the middle of 2014 has put immense pressure on Saudi Arabia’s petrodollar-dependent economy. Its foreign-exchange reserves declined to $587 billion at the end of March, down more than 21% from a peak of $746 billion in August 2014, according to the latest central-bank data. It spends billions to maintain the currency peg, according to analysts.
Saudi Arabia’s currency peg has worked well in the past, giving it stability as it enjoyed a decade of expensive oil, a commodity priced in dollars and the kingdom’s main revenue earner. But that income has slumped, straining the kingdom’s finances. Abandoning the peg would stretch those dollars because the riyal would weaken.
Most analysts, however, don’t see the country abandoning its peg in the near to mid term, as repayment costs for households and companies that have borrowed in foreign currencies would rise in local-currency terms. And inflation would likely soar due to a rise in the price of imports.
Spearheading the response to these challenges has been Prince Mohammed, who also heads the country’s Council of Economic and Development Affairs, a government body created last year with a mandate of handling domestic policy.
The plan—dubbed Saudi Vision 2030—aims to make investment replace oil as the main source of revenue by creating what officials described as the world’s largest sovereign-wealth fund.
In a step to increase the number of visitors to Saudi Arabia, the Ministry of Hajj has been renamed to become the Ministry of Hajj and Umrah, an indication of a new focus on religious tourism. Umrah, also known as the lesser pilgrimage, is seen as a potentially lucrative field for the kingdom, which was host to around eight million umrah pilgrims last year. Saudi Arabia wants to increase that number to 15 million by 2020.
The king also established two new commissions for culture and entertainment, another area where Saudi decision makers see potential for growth in a country that still doesn’t allow movie theaters.
As part of the restructuring, the king canceled the Ministry of Water and Electricity. Management of the kingdom’s scarce water resources will move to the Ministry of Agriculture, which has been renamed to become the Ministry of Environment, Water and Agriculture.