On Thursday the Saudi Arabian Cabinet passed budget projects expected to increase spending while accounting for a significant drop in revenue. The measures forecast an $Aus 48 billion deficit.

The government has announced its intention to reduce salaries, wages, and allowances accounting for 50 per cent of total budget expenditure. These measures are expected to meet with anger from the youth of the kingdom, who make up the majority of the population. Younger workers are already struggling to afford housing and meet cost of living expenses.

Two thirds of the country is employed by the government, most of whom work in oil production and its peripheral industries. Drops in the price of oil (as has happened since June of this year) impact squarely upon them.

The fledgling Saudi private sector is incapable of accommodating an expected rise in unemployment from a contracting oil industry in 2015.

This has led the IMF to (somewhat belatedly) ‘recommend’ the Saudi government invest heavily in the country’s private sector.

In 2011, during the Arab Spring, King Abdullah was forced into pledging $120 billion to stimulate job creation and public sector wages.

Valerie Marcel, Associate Fellow and energy researcher at Chatham House, believes the government spending throughout the Gulf is “really the thing that keeps the lid on the bottle.” Furthermore, the surpluses accumulated from years of exorbitant oil prices are allowing the Arab monarchy to maintain budget deficits.

Saudi-based investment firm Jadwa Investment agrees. Huge stocks of foreign assets ($736 billion), owned by the Saudi Arabian Monetary Agency, will easily bankroll the deficit. This will allow them the forecast 0.6 per cent rise in spending while revenue shrinks. This tightened budget is expected to calm investor nerves about the drop in oil prices.

The official budget did not include a predicted price for oil in 2015. However, Jadwa Investment gauges the government as expecting a price of $56 per barrel for Saudi export crude, a price of $60 per barrel for Brent crude, and production to remain around 9.6 million barrels per day.

About The Author

Someone you can depend on to respect you and care for your dog. Let me help you give your dog the life it deserves.

Leave a Reply

Your email address will not be published.