| | | aljazeera.com
Austerity on tap
The kingdom has healthy foreign exchange reserves, roughly $500bn, to ride out a price war, and it does enjoy the lowest production costs among all oil producers.
The Saudis "can still turn-out a profit at these low oil prices, at least for a time," Tarik Yousef, director at Brookings Doha Center, a nonprofit public policy organization, told Al Jazeera.
Balancing its budget, however, is another story.
The International Monetary Fund reckons the kingdom needs oil to fetch around $83 a barrel to balance its state budget.
Global benchmark Brent crude last traded at $33.84 a barrel on Friday.
Goldman Sachs reckons that should oil prices average $30 a barrel over the next two quarters and the kingdom boosts output by 10 percent, its budget deficit could swell to 12 percent of gross domestic product (GDP) this year -nearly double its fiscal deficit target.
That would increase the government's financing requirement by $36bn.
There could be a silver lining. Goldman estimates that if oil prices recover to $60 a barrel by the end of 2021, the kingdom's budget deficit could narrow to less than 2 percent of GDP by 2022.
But if oil prices only recover to $50 a barrel by the end of next year, Goldman sees the budget deficit remaining "wider for longer, implying an additional $63bn in funding requirements" over the next two years.
More dramaAusterity measures may have been in the cards before the kingdom declared a price war, as Riyadh prepared for slowing oil demand in the face of coronavirus.
State agencies were asked to submit proposals for slashing 20 to 30 percent from their 2020 budgets before the kingdom fell out with Russia, Reuters News Agency reported, citing sources. One source said salaries would not be touched, but projects and the awarding of new contracts could be delayed.
"With salaries largely protected, the impact could be on capital expenditure, which will have a knock-on impact on the private sector and likely hinder diversification efforts," said James. |
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