Economic tanks running low for Saudi Arabia

Published February 3rd, 2016 - 11:30 GMT
Forecasters predict cheap oil prices will lead to economic turmoil in Saudi Arabia in 2016. (AFP)
Forecasters predict cheap oil prices will lead to economic turmoil in Saudi Arabia in 2016. (AFP)

According to AFP, an economic report issued Tuesday by Saudi Jadwa Investment shows that Saudi Arabia’s fiscal reserves fell to a four-year low of $611.9 billion USD in 2015, down from $732 billion USD in 2014 and the lowest level since 2011.

Jadwa also predicts this downward trend will continue after watching oil prices plummet by three-quarters since the middle of 2014, and it expects Saudi’s fiscal reserves to be around $500 billion USD by the end of 2016.

Because of the steep decline of oil revenue by 60% last year to 118 billion USD, the budget deficit for the country was a record setting $98 billion USD, and despite a government projection of an $87 billion USD deficit in 2016, Jadwa predicts that the shortage will more than likely be over $107 billion USD at the end of this year.

AFP also reports, however, that the kingdom is taking measures to aid the financing of the shortfall. Bonds worth $30 billion USD have been issued to the domestic market. In December 2015, fuel prices were raised by 80 per cent. The prices of electric, water, natural gas and other utilities were also raised.

As a result, Jadwa forecasts a 1.7 per cent increase in inflation, from 2.2 percent last year to 3.9 percent at this year’s end.

Though the country’s gross domestic product (GDP) rose 3.4 per cent last year, Saudi Arabia also hopes to slow the downward spiral of its GDP which is expected to be only 1.2 percent this year, the lowest in seven years.

Many of the country’s officials and businessmen are now working together to find alternatives to saving the kingdom’s economy, including the development of new businesses and creating more opportunities for non-governmental sectors.

 In these uncertain times, government stakes in big state companies such as Aramco may have to be sold, and little used assets like property and minerals may have to be available for private development.

With low oil prices threatening the economy, and the country producing only 10.2 million barrels a day, the country is being helped by a group of over 100 Western advisors, preparing for some of the worst economic difficulties in decades.

 


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