World Economy

Black Economic Cloud Over Saudi Arabia

Black Economic Cloud Over Saudi ArabiaBlack Economic Cloud Over Saudi Arabia

Saudi Arabian entrepreneur Essam al-Zamel has overcome many obstacles to found a string of technology companies in the past decade, but he thinks sliding oil prices will be hard to handle.

“A black economic cloud is covering the skies of Saudi Arabia,” Zamel tweeted last week, warning that prices might not recover for five or 10 years, Reuters reported.

Oil’s drop to six-year lows, less than half mid-2014 levels, is beginning to sour the business mood in the world’s top oil exporting nation.

After a decade of sky-high oil revenues and rapid growth, Saudis are grappling with the idea they may be entering a long period of more modest economic circumstances.

That realization is reflected in a tumblwing stock market and a public debate about the kingdom’s economic future–some of it coming close to criticizing government policy, which is unusual in a country where dissent is tightly controlled.

“Over the past 10 years, expert advice has been ignored. The economic system did not heed it and preferred to sleep on the cushion of the oil boom,” tweeted prominent economist Abdulhamid al-Amri.

Saudi Arabia must wean the private sector off an addiction to oil-fuelled government spending and curb speculation in the stock and real estate markets, which is widening social inequality, he wrote.

Other economists and businessmen are urging officials to do more to diversify the economy, reduce the country’s dependence on millions of foreign workers, and restructure state spending.

Saudi Arabia’s financial reserves is far from crisis. With Brent crude at $45 a barrel, the government is running an annual budget deficit near $150 billion–but it has over $600 billion of foreign assets at the central bank and little debt.

Meanwhile, National Commercial Bank, Saudi Arabia’s largest lender, is selling a two billion riyal ($533.3 million) sukuk as part of its plans to raise capital, two banking sources with knowledge of the matter said, Arabian Business reported.

The offer, which enhances the bank’s Tier 1–or core–capital and is compliant with Basel III banking regulations, is the third such transaction by NCB since June, and is part of a plan to raise as much as seven billion riyals of capital before the end of 2015, one of the sources said.