Saudi Arabia’s effort to push suppliers out of the market through cheap oil policy is shredding the country’s finances, and now the International Monetary Fund (IMF) is warning they risk burning through all their funds within the next 5 years.
The Saudi government has been selling bonds for the first time since 2007, reports Bloomberg, and is delaying projects as it attempts to shrink its budget deficit. Oil’s prolonged stay under $50 a barrel has dried up reserves, with oil profits accounting for 80 percent of Saudi Arabia’s revenue.
The government has planned to cut spending moving forward, however the IMF says their efforts, “are likely to be inadequate to achieve the needed medium-term fiscal consolidation,” reports Bloomberg. Saudi Arabia’s debt as a share of gross domestic product will rise over 18 percent from 2014 by the end of the year, and King Salman promised one-time bonuses to all public sector workers, adding to their spending burden.
Additional bad news broke Wednesday morning for the Saudis as Russia topped the oil giant as the biggest supplier of crude oil to China for the second month this year. In a major shift, the Chinese government has be allowing independent crude buyers into the country since July, reports Reuters, driving up demand for Russian supply. A pipeline delivering East Siberia-Pacific Ocean crude directly to northern China has also helped drive the surge in exports, according to Bloomberg.
The IMF report, published Wednesday, also warns that Bahrain and Oman will be in similarly dire financial straits if current price levels are maintained. Kuwait, Qatar and the United Arab Emirates on the other hand have enough assets to last for almost 20 years.
Saudi Arabia and other countries in the region need to strike a balance between financial stability and spending programs needed for regional stability, according to the International Business Times. The IMF said, “Achieving fiscal stability over the medium term will be especially challenging given the need to create jobs for the more than 10 million people anticipated to be looking for work by 2020 in the region’s oil-exporting countries.”
David Butter, associate fellow at Chatham House in London, said that Saudi Arabia isn’t at a crisis point yet, with borrowing and budget reform options still on the table, reports Bloomberg. If they don’t consolidate their finances in the next few years however, Butter warns, “then of course, they’re in big trouble.”
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