Security vs. Austerity
As it grapples with declining revenue in the first and second quarter of 2020, Riyadh may be cutting or delaying big-ticket arms purchases, as well as altering timetables for payments and deliveries of existing arms deals in its military budget. Saudi Arabia's GDP is now expected to decline as much as 3.2 percent in 2020. The kingdom has already enacted spending cuts of around $26.6 billion, tripled its value-added tax (VAT), and ended some mortgage and living allowance subsidies.
- Since King Salman took power in 2015, Saudi Arabia has steadily reduced its share of spending as a percentage of GDP, from 13.3 percent in 2015 to 8 percent in 2018.
- Saudi military spending has been further reduced by Riyadh’s push to draw down its role in Yemen's civil war.
Saudi Arabia will remain committed to ensuring that defense spending props up its social contract with Saudi citizens and is able to respond to internal threats. To maintain internal security, it is unlikely that Riyadh will substantially cut budget funding for the royal Presidency of State Security, which is responsible for the personal protection of key members of the monarchy, or the tribally-dominated Saudi Arabian National Guard.
- The kingdom is unlikely to alter payroll or pension structures for Saudis employed in other parts of the military to ensure soldiers and their families are able to weather the country's pandemic-induced economic crisis.
- Saudi Arabia may, however, aim to modestly reduce the number of soldiers in its military over time, as it did between 2010-2015 (going from 233,500 personnel to 227,000) through retirement attrition and reduced recruitment.
- Saudi Arabia will also continue to rely on the United States to lead the deterrence to major external threats in the region, such as Iran.
Defending the Saudi Defense Sector
Even if it's slowed or delayed, Saudi Arabia will also likely continue to work toward its Vision 2030 goal of developing an independent arms industry that can internally meet 50 percent of the kingdom's defense needs within the next ten years. This goal is unlikely to be met, given that Saudi Arabia's domestic arms industry met only 2 percent of its defense needs in 2018. But state-owned companies such as General Authority for Military Industries (GAMI) and Saudi Arabian Military Industries (SAMI) are nevertheless likely to experience continued state support due to their increasingly vital role in expanding Saudi Arabia's non-oil economy — another key Vision 2030 goal.
- The defense industry already employs thousands of Saudis, which will incentivize Riyadh to continue supporting GAMI, SAMI and other domestic companies to ensure they can continue to grow and create more jobs.
Riyadh is likely to avoid major new foreign arms deals, preferring to wait until better economic conditions allow it to purchase a big-ticket weapons system. The kingdom will also likely continue to delay payments on its existing arms deals, including its 2017 agreement with the United States to purchase $110-$350 billion worth of American-made weapons by 2027.
- Saudi Arabia has already spent only $4 billion in six of its foreign arms contracts over the past two years, well below even the low average of an expected $11 billion per year, according to the U.S. State Department.
- In October, the U.S.-based defense company General Dynamics also said the kingdom was also around $3.4 billion late in payments for Canadian-produced Light Armoured Vehicles (LAVs), which indicates Saudi Arabia may consider slowing payments to other international contracts beyond the United States.
Facing severe budgetary strain due to COVID-19 and low oil prices, Riyadh will likely reduce its arms purchases, while avoiding spending cuts that could impede its internal security or the development of its defense sector.
Beyond the likely long recovery from COVID-19 and low prices, Saudi Arabia's defense development may also soon face the challenge of a less friendly U.S. administration.
- U.S. President Donald Trump's security ties with Saudi Arabia have come under intense scrutiny in Washington due to the kingdom’s controversial human rights record. In a bipartisan vote in 2019, Congress moved to block a Saudi-Emirati emergency arms sale, which Trump ultimately vetoed.
- Trump's primary opponent and presumptive Democratic candidate in the November presidential election, Joe Biden, has displayed similar concerns about the White House's close relationship with Riyadh. Among other statements, Biden said he'd turn the kingdom into a "pariah" during a debate in November. Should he successfully defeat Trump in November, Riyadh will be less able to count on U.S. arms sales.