Saudis Face a Tumultuous Task

Saudi Arabia has had a tough time weathering the crash in oil prices. GDP growth which was 10% in 2011, slumped to just 2.7% by 2013. Although it has marginally improved to around 3.5% by 2015, it is again expected to slump to 1.2% in the current year.

Oil GDP which grew in double digits at the start of the decade petered down and even declined by 1.6% in 2013 and then marginally recovered to 4.0% by 2015. However, oil GDP is expected to increase by just 0.6% this year, news outlets reported.

This was mainly because Saudi oil exports have fallen to less than half the previous levels. Oil exports which brought in $317.6 billion at the turn of the decade, are expected to earn just $132.6 billion.

The country which had a current account surplus of 23.7% of the GDP in 2011 is expected to run a deficit of 6.4% of the GDP in the current year. The Saudi Arabian Monetary Agency had to run down its foreign assets from $724 billion in 2014 to $542.9 billion now.

  Government Revenues Decline

The fall in oil exports has hit government revenues. Oil revenues which was as much as 41% of the annual revenues of the central government in 2012 has steadily declined and come down to 18.4% by 2015 and is now expected to be just 14.2% in 2016.

Consequently the central government expenditure has been squeezed with its share in the GDP coming down from 40.3% in 2014 to 35.7% in 2016. The worst hit was the capital spending which shrunk down from 16.7% of the GDP to 9.6% in 2016.

However despite the shrinkage in central government spending, the government has seen its deficit levels shoot up. The country which ran a double digit fiscal surplus at the turn of the decade has seen the deficit balloon to 15.9% of the GDP in 2015.

The efforts to raise more resources, has also added to the inflation with the consumer price increase expected to almost double to 4.2% in 2016.

  Dark Road Ahead

The government has responded to the crisis by trying to diversify its economic base, providing new employment opportunities for its nationals and improving fiscal management to restore the fiscal balance.

Success of the Saudi Arabian reforms is important not only for its own economy but for all other nations in the (Persian) Gulf Cooperation Council (Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman), the Middle East and North Africa who are partially dependent on it in a variety of ways including aid, remittances and tourism.

However, the way ahead is uncertain. The government has rolled out a Vision 2030 document laying down long term targets. The idea is to not only reduce the size of the government by reducing the payrolls by one fifth by 2020, but at the same time adding almost half a million new jobs in the private sector. This should allow a reduction of the unemployment levels from 11% to 9% and also help increase women’s participation in the workforce from 22% to 30%.

Other important targets laid out include increasing the share of the private sector in the economy from 40% to 65% of the GDP. The share of the nationally owned oil sector is also to be increased from 40% to 75%.

  First Int’l Bond Sale

Saudi Arabia is set to launch its first international bond sale on Wednesday to help ease an economic downturn caused by oil price slump.

The kingdom is targeting between $10 billion and $15 billion in the bond sale. This will make it the largest issue of international debt in the Middle East, said a Financial Times report.

Banks connected to the sale said the Saudis are due to conclude a transatlantic roadshow on Tuesday for the dollar-denominated bond—one of the most eagerly awaited issues this year—after which they will release initial price guidance.