There are conflicting reports emerging over the financial state of the kingdom of Saudi Arabia thanks to Brent price of oil sinking to below $50 a barrel.
Reuters cited a study by former Saudi central bank official Khalid Alsweilem who warned that the world might have entered a sustained period of low oil prices, placing Riyadh in a precarious position. Alsweilem, currently a fellow at the Harvard Kennedy School’s Belfer Center in the US, added that “Oil revenues alone are unlikely to keep pace with future spending needs”.
Alsweilem also made a series of proposals in his paper, such as setting up two new sovereign wealth funds and introducing new fiscal rules to decouple state spending from oil revenues.
Nonetheless, other experts Reuters spoke to argued that the Saudi regime was maintaining its existing spending patterns and could continue to do this for the next three years because because of the country’s currency reserves and oil revenues.
“There is no short-term crisis – Saudi Arabia’s ability to cover the fiscal deficit is still strong,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.
Concerns over Saudi Arabia financial solvency emerged when the country’s central bank issued bonds in July, worth $4b, as reported by CNN Money.
Government spending has actually gone up recently, thanks to the Saudi military efforts in Yemen, with a budget deficit is expected to reach 20% of GDP in 2015. The IMF is forecasting budget deficits through 2020. What is more, Saudi Arabia is adamant to keep oil production high to continue the price war with the US shale industry.