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Saudis Risk Draining Financial Assets in 5 Years

Saudi Arabia may run out of financial assets needed to support spending within five years if the government maintains current policies, the International Monetary Fund said, underscoring the need of measures to shore up public finances amid the drop in oil prices.

The same is true of Bahrain and Oman in the six-member Gulf Cooperation Council, the IMF said in a report on Wednesday. Kuwait, Qatar and the United Arab Emirates have relatively more financial assets that could support them for more than 20 years, the Washington-based lender said.

Saudi authorities are already planning spending cuts as the world’s biggest oil exporter seeks to cut its budget deficit. Officials have repeatedly said that the kingdom’s economy, the Arab world’s biggest, is strong enough to weather the plunge in crude prices as it did in similar crises, when its finances were under more strain.

But the IMF said measures being considered by oil exporters “are likely to be inadequate to achieve the needed medium-term fiscal consolidation,” the IMF said. “Under current policies, countries would run out of buffers in less than five years because of large fiscal deficits.”

Reserve Accumulation

Saudi Arabia accumulated hundreds of billions of dollars in the past decade to help the economy absorb the shock of falling prices. The kingdom’s debt as a percentage of gross domestic product fell to less than 2 percent in 2014, the lowest in the world.

The recent decline in the price of crude, which accounts for about 80 percent of Saudi’s revenue, is prompting the government to delay projects and sell bonds for the first time since 2007. Net foreign assets fell to the lowest level in more than two years in August, with the kingdom fighting a war in Yemen and avoiding economic policies that could trigger social or political unrest.

Budget Deficit

The IMF expects Saudi’s budget deficit to rise to more than 20 percent of gross domestic product this year after King Salman announced one-time bonuses for public-sector workers following his accession to the throne in January. The deficit is expected to be 19.4 percent in 2016.

“There have been a number of one-off spending proposals this year that have taken place, and those initiatives have added to the spending needs,” Masood Ahmed, director of the Middle East and Central Asia department at the IMF, said in an interview in Dubai.

“The budget deficit in Saudi Arabia does go down substantially as a share of GDP over the next five years but it still remains high over this period, all the more reason to identify ways in which it can be brought down further to more a manageable level,” he said.

David Butter, associate fellow at Chatham House in London, said a crisis isn’t imminent.

“They have options of borrowing and then they have other options in terms of structural reform, developing some sort of effective tax policy, maybe some privatization,” he said by phone. Still, if the government doesn’t develop sustainable non-oil revenue over the next 5 to 10 years, “then of course, they’re in big trouble,” he said.

The benchmark Tadawul All Share Index for stocks declined 1.7 percent at 12:35 p.m. in Riyadh, extending its drop over the past year to 25 percent. The MSCI Emerging Market Index has fallen 12 percent over the same period.

Debt Sales

The kingdom’s net foreign assets fell for a seventh month to $654.5 billion at the end of August. Saudi Arabia has raised 55 billion riyals ($14.7 billion) from debt issuance this year. The IMF expects the debt-to-GDP ratio to grow to 17 percent next year.

Saudi Arabia has led the Organization of Petroleum Exporting Countries in boosting production to defend market share even as prices plunged below $50 a barrel, abandoning its previous role of cutting output to boost prices.

Analysts have said Oman and Bahrain face greater risks than their wealthier neighbors from the decline in crude prices, with less oil to sell, thinner fiscal buffers and in Bahrain’s case, more debt.

The IMF expects Oman’s budget deficit to widen to 17.7 percent of GDP this year and 20 percent in 2016. For Bahrain, the fund expects the shortfall to stand at 14.2 percent in 2015 and 13.9 percent next year.


10 Comments on "Saudis Risk Draining Financial Assets in 5 Years"

  1. Kenz300 on Wed, 21st Oct 2015 9:16 am 

    KSA needs to stop subsidizing internal demand……..

    Wasteful internal demand needs to end.

  2. rockman on Wed, 21st Oct 2015 11:34 am 

    Just more info indicating that the KSA doesn’t have today and never had the intent to knock down oil prices to hurt US shale players. Just the fact that the KSA is losing at least 3X as much revenue as ALL THE US SHALE PLAYERS COMBINED should have been enough of a clue to indicate how so much of that chatter was pure bullsh*t. Just consider that if the Saudi govt doesn’t keep appeasing their citizens the next pair of planes might be flown into the Murabba Palace. More than a few Saudi citizens have been known to take such drastic actions in the past.

    I doubt Chesapeake has to worry about pissed off shareholders doing the same to their corporate offices. LOL

  3. BobInget on Wed, 21st Oct 2015 2:22 pm 

    “Draining assets” that headline is so telling on so many levels.

    Of course, all of Saudi Liquid Assets (the actual crude oil and gas) will be gone by late 2020.

    It’s not too late for KSA to Sue for peace in Yemen and Syria. It’s not too late for KSA
    to throw a huge high level Muslim conference to bring Islamic followers peacefully together again. It’s not too late to stop supporting both international terrorism and an entire global arms industry.

    Too much money.

    Never before has so much power
    been invested in any religious movement.

    We needn’t be reminded of various historical horrors committed in the name of various religions. We’re just unlucky enough to be living through periods of atrocities done in the name of Islam. This too shall pass though few here will be alive to witness peace.

    The Saudis keep ordering more sophisticated
    weapons. Who can say with any confidence Israel and Pakistan are the only nuclear powers in the ME? Israel and Saudi Arabia were the loudest voices raised against Iranian
    nuclear parity.

    One or two things are evident at this time.
    The longer KSA persists and the US supports insanity, the crazier and less rational we all become.

  4. HARM on Wed, 21st Oct 2015 3:00 pm 

    I wouldn’t hold my breath, but if it’s true that the KSA is draining its treasury trying to satisfy domestic demand and pacify its population, then that’s great news for the rest of the world. The KSA is one of the worst, most backward, misogynistic, xenophobic, intolerant and violent regimes on earth. They spend billions of petrodollars turning the rest of the Sunni Muslim world into rabid fanatics and spreading their sick, twisted worldview through their Wahabbi madrassas, fatally warping millions of young minds in the process.

  5. Truth Has A Liberal Bias on Wed, 21st Oct 2015 7:08 pm

    KSA is run by a tribe with little regard for the nation state it controls. They will milk it dry then flee to southern France like many African dictators have done before them. The leading clique will hang on for as long as they can, squeeze it for all its worth and be done with it.

  6. makati1 on Wed, 21st Oct 2015 7:14 pm 

    Might be worth a read if you want a good idea of the options in the ME and KSA.

    Be sure to read the parts before it first. 1, IIa, & IIb.

  7. apneaman on Wed, 21st Oct 2015 7:31 pm 

    HARM, sounds like my neighbour……to the south.

  8. BC on Wed, 21st Oct 2015 8:32 pm 

    HARM, that is about the most succinctly apt description of the KSA that I have heard to date.

    Moreover, if Americans knew about their role allied with the Israelis and the Anglo-American shadow gov’t/deep state in carrying out 9/11, well, you get the picture . . .

  9. BC on Wed, 21st Oct 2015 8:39 pm 

    Bob, note that the KSA’s oil production per capita is at the level of the late 1990s, and the gov’t is running a deficit of ~19% of GDP (equivalent to the US having a deficit of $3.5 trillion, which is half of wages and salaries and ~100% of federal gov’t spending) to keep the oil flowing, social payments, and to fight wars with their neighbors.

    As Dumbya said, “This sucker could go down.”

    And “this sucker” is, in fact, in the process of doing just that, i.e., becoming a failed state that the Anglo-American military will have to occupy in time to prevent Russia, China, Iran, or ISIS from doing it.

  10. shortonoil on Thu, 22nd Oct 2015 10:51 am 

    How fast KSA drains its financial assets depends on the price of oil:

    $20 oil would end that monarchy pretty rapidly!It would also end most oil production in the Middle East.

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