World Economy

Saudi Budget Deficit May Reach 20% of GDP

Saudi Budget Deficit May Reach 20% of GDPSaudi Budget Deficit May Reach 20% of GDP

A sharp decline in global oil prices has seriously damaged the financial power of Saudi Arabia. According to different estimates, the deficit of the country’s budget may reach up to 20% of GDP.

The decrease in oil revenues forced Saudi Arabia to issue government bonds worth 20 billion riyals ($5.3 billion) for the second time over this summer. In June, the country issued bonds worth 15 billion riyals ($4 billion). Sputnik reported.

According to Bloomberg, this year Saudi Arabia sold its first bonds since 2007. The country may raise a total of $27 billion by the end of the year, Dmitry Postolenko, a portfolio manager for asset management company Kapital, pointed out.

Saudi Arabia is in need of money after oil prices halved, the analyst said. “In 2015 the country needs oil prices of around $105 per barrel to balance its budget. The country relies on oil sales for 90% of its budget revenue,” Postolenko explained as quoted by

Tim Callen, who led an International Monetary Fund mission to Saudi Arabia in May, said in 2015 “the decline in oil prices is resulting in substantially lower export and fiscal revenues.”

“Government spending in 2015 is expected to remain strong, partly due to a number of one-off factors, while oil revenues have declined. As a result, IMF staff projects that the government will run a fiscal deficit of around 20% of GDP [nearly $140 billion] in 2015,” Callen was quoted as saying by International Business Time.

Until recently, Saudi Arabia compensated the loss with money from government reserves. Since August 2014, the country withdrew $65 billion from its general monetary reserve which currently is around $672 billion.

Bond selling would help slow down the decline of the country’s monetary reserve, analyst at Promsvyazbank Alexander Polyudov explained.

The point is that the current fiscal problems of Saudi Arabia resulted from its own policy in the oil market. The country has maintained an oversupply of oil as well as low prices to preserve its market share and obstruct the production of shale oil in the US.

Nevertheless, Grigory Kosach, an expert at the Institute for the Middle East of the Russian Academy of Sciences, opposes a theory that Saudi Arabia in cooperation with the US deliberately dropped oil prices to damage the Russian economy.

He also noted that according to Saudi officials the country plans to stick to its strategy in the future.