Home > Democracy, Economic Development > Oil-rich nations spend more at home, but it’s not sustainable

Oil-rich nations spend more at home, but it’s not sustainable

July 19, 2011

Oil-rich Arab nations spent more at home this year as autocrats dished out one-time benefits to quell civil unrest. While it’s a good sign that such rulers responded to protesters, it falls short of a real policy change in how oil-rich states disburse revenue.

The fact protesters pushed autocrats to realize they needed to spend more domestically shows the effect the threat of losing power has on those rulers. So what then would create long lasting reforms in government spending on domestic programs and businesses? Democracy. Human rights. Better institutions. Anything that allows citizens to hold officials accountable, and one way of doing that is through an enforced electoral process.

In essence, this spending merely aimed to pacify those with only a lukewarm revolutionary fever and increase support among regime backers. These are not long term, sustainable spending programs.

From ArabianBusiness.com:

Following popular revolts in the Middle East and North Africa, countries like Bahrain, Libya and Kuwait increased domestic spending or handed cash outright to their citizens in packages totalling as much as four percent of gross domestic product. Saudi Arabia alone is spending $130bn, or a staggering 30 percent of its GDP.

These countries can more than afford to do so, if Goldman Sachs’ estimate for petrodollar savings flows are anything to go by: the bank forecasts imply $840bn over the coming year, based on Brent oil at $126.50 a barrel by mid-2012.

Saudi Arabia, for example, doled $130 billion to its citizens this spring. But much of this came in the form of housing credits and other cosmetic fixes to superficially enhance quality of life without actually changing anything.

Institutions are rarely built from the top-down in such societies. Protesters coaxed benefits from tight-fisted rulers through their voices and actions. Imagine what would happen if they could do that every two or four years at the polls.

 

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