Policies of Impoverishment and the Economic Recession in Saudi Arabia

 

Policies of Impoverishment and the Economic Recession in Saudi Arabia: The Need for Expansionary Policies and Lowering the Retirement Age

The Saudi economy is moving in the opposite direction of the so-called promises of Vision 2030. The purchasing power of citizens keeps declining year after year, while wages have remained almost unchanged since the 1970s. Instead of addressing this growing income gap, the Bin Salman government has introduced a series of measures that increased the burden on citizens: raising the value-added tax (VAT) to 15%, removing subsidies on fuel and basic goods, increasing electricity tariffs, and multiplying fuel prices from 0.55 riyals (Saudi cents) to 2.5 riyals per liter, all without any corresponding wage increases or real compensation for households.

In macroeconomics, when austerity policies are applied amid stagnant real income, overall demand contracts, a phenomenon known as self-induced recession, and that is exactly what has happened. Saudi families have cut back on spending not only because prices have risen but because many now have to support unemployed relatives who receive little or no government assistance, often denied under flimsy pretexts designed to deprive them even of the token aid that barely covers the minimum cost of living or preserves basic dignity. Government assistance programs are mostly symbolic and superficial, serving more to polish the regime’s image than to function as genuine social protection. “Support payments” are publicly announced in official newspapers for propaganda purposes rather than for real developmental goals.

These policies quickly hit the private sector. Major retailers across the Kingdom reported sharp declines in profit despite higher nominal sales. Abdullah Al Othaim Markets saw profits drop by 34% in the first quarter of 2025 even though sales exceeded 3 billion riyals, meaning operating costs ate up the revenue gains. BinDawood Holding reported a 31% drop in net income in 2024 due to higher costs and weaker sales at Panda and Hyper Panda. Panda Retail Company, part of the Savola Group, continued closing dozens of branches nationwide after cumulative operating losses exceeding 300 million riyals over two years. Almarai, the Gulf’s largest food producer, saw profits fall 16% in Q2 2024 despite price hikes, due to rising financing, energy, and transport costs. Extra (United Electronics Co.) also posted lower profits as demand for non-essential goods weakened alongside rising interest rates.

This simultaneous decline across food, consumer, and electronics sectors is a clear sign of domestic demand contraction and weakened purchasing power, not a temporary market swing. According to the Profit Margin Theory, when nominal sales increase but profits do not, it signals stagflation, inflation combined with weak real demand and shrinking disposable income.

Hundreds of small and medium enterprises have also shut down due to excessive fees, weak sales, and rising operational costs. In theory, new fiscal reforms should have been preceded by an economic stimulus to boost productivity and expand income sources. Instead, these measures were imposed all at once, violating the golden rule of sound economic management: fiscal reform must be preceded by productive incentives that soften social impacts and stabilize the market.

Meanwhile, state spending has been directed toward massive, non-productive megaprojects such as NEOM, The Line, New Murabba, Qiddiya, and Trojena, with an estimated total cost of $8.8 trillion, about 33 trillion SAR. These figures far exceed Saudi Arabia’s GDP and would take decades to complete. Reports by Financial Times and Le Monde confirm that these projects are plagued by financial and operational delays and shrinking scopes, making them look more like vanity projects draining national resources rather than adding real economic value.

At the same time, the Public Investment Fund (PIF) continued channeling billions abroad into foreign companies and funds, even as the domestic economy struggles with liquidity shortages and weak internal investment. International reports show that many of these overseas investments have become a liability, draining resources from the fund. Some were sold at a loss, while others stopped generating returns entirely, reflecting poor planning and weak real returns to the national economy.

From a Keynesian macroeconomic perspective, this is a serious structural mistake. During times of recession and low domestic demand, a government should invest internally to stimulate production, create jobs, and strengthen local consumption, not export its capital abroad to enrich other economies.

The banking sector has also felt the strain. Saudi banks report declining liquidity as deposits shrink and people withdraw their savings to cover daily expenses, a sign of eroding household incomes, stagnant wages, and growing unemployment within families, leading to a visible slowdown in the economic cycle and reduced consumer power.

The economic policies pursued by Mohammed bin Salman can rightly be described as a deliberate strategy of impoverishment. They haven’t just weakened the middle class; they have pushed large segments of the population toward poverty through a mix of higher taxes, soaring prices, subsidy cuts, and total centralization of decision-making without oversight or accountability.

Mohammed bin Salman has failed to manage the economy by even the most basic standards of public administration or macroeconomics. He combined austerity measures such as tax hikes and new fees with lavish spending on non-productive megaprojects, with no balance or transition plan. Even if we assume good intentions to fight inflation, the results have been the opposite: prices doubled, and demand collapsed. For example, a chicken sandwich rose from 2 riyals in 2014 to 16 riyals in 2025; bread went from 1 to 3 riyals; baby formula from 20 to over 70 riyals; and fuel from 0.55 riyals to 2.5 riyals per liter.

Today, Saudi Arabia stands as a textbook case of stagflation, stagnant growth with inflation, eroded incomes, and a weakening real economy. Citizens are draining their savings, companies are losing profits, and banks are running dry, while the Bin Salman government keeps promoting fake “economic achievements” contradicted by reality. The current recession, felt by citizens and businesses alike, is the direct result of his top-down, impulsive, and poorly designed decisions that ignored basic principles of fiscal balance and economic prudence.

The only way to avoid full economic collapse is through a complete policy shift toward genuine expansionary measures that restore confidence and stimulate domestic demand, including:

• Cutting VAT below 10% to reduce the burden on consumers.

• Raising salaries in line with real inflation.

• Reducing import tariffs on food, school, and office supplies to lower living costs.

• Increasing unemployment benefits and social support for vulnerable groups.

• Lowering the retirement age, even by one year, to create new jobs and revive the labor market.

The retirement age is one of the most effective tools for managing unemployment. Lowering it even by a single day frees positions for new workers; reducing it by several months or a year could significantly cut unemployment and boost household spending. Some might argue this would strain the pension or social insurance funds, but from a macroeconomic point of view, that is an acceptable tradeoff because reducing unemployment is more urgent than maximizing surpluses. The state can balance the system temporarily through direct budget support or low-interest sovereign loans until the market stabilizes and local demand rebounds.

In past crises, governments often relied on disguised employment, creating non-productive jobs just to reduce social pressure. This proposal is far more rational: instead of fake jobs, the state simply covers reasonable pension fund gaps while enabling genuine employment opportunities for the youth and ensuring fairer income distribution. The modest cost of pensions is negligible compared to the social and economic benefits of lower unemployment and stronger consumption.

Meanwhile, calls from certain Western figures and organizations to raise the retirement age to 75 are politically motivated, not economically sound. Many of these advocates, often linked to Zionist circles, have seen their public image suffer due to retirees in their own countries who, armed with decades of experience, have become vocal critics exposing the extent of Zionist influence in Western politics and media.

In conclusion, Mohammed bin Salman has pursued policies designed to impoverish the Saudi people, and impoverishing citizens is not a development strategy but a blueprint for destruction. Any economy built on exhausting its people with taxes and denying them fair income is destined for stagnation and collapse. Unless the Saudi government changes course and adopts a more expansionary, fair, and balanced economic approach, this current recession will not be temporary; it will evolve into a long-term crisis that jeopardizes the Kingdom’s future and its economic reputation for decades to come.