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IMF Report Saudi Arabia Could Be Bankrupt By 2020

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The Middle East’s biggest economy, Saudi Arabia may run out of financial assets within the next five years if the government maintains its current policies, warns the International Monetary Fund.

Saudi Arabia is expected to run a budget deficit of 21.6 percent in 2015 and 19.4 percent in 2016, according the IMF’s latest regional economic outlook.

The country needs to adjust spending, the IMF urged.

The IMF outlined two key factors shaping the region’s outlook. They are spreading and deepening regional conflicts and slumping oil prices.

The conflicts have given rise to large numbers of displaced people and refugees, on a scale not seen since the early 1990s, according to the report.

“Achieving fiscal sustainability 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,” IMF Middle East and Central Asia Department Director Masood Ahmed told journalists after the report’s unveiling in Dubai.

According to the research, many experts suggest low oil prices will remain in place for the foreseeable future.

“For the region’s oil exporters, the fall in prices has led to large fall in revenue, amounting to a staggering $360 billion this year alone,” Masood Ahmed said.

OPEC members Saudi Arabia, Iran, Iraq, Kuwait, Qatar, UAE, Algeria and Libya have all seen their revenues drop sharply as a result of a decline in oil prices.

Saudi Arabia is currently facing a budget deficit for the first time since 2009. The crude price decline has strongly influenced the kingdom’s economy since oil sales account for about 80 percent of its revenues. It has prompted the government to cut spending, delay projects and sell bonds.

The country’s net foreign assets fell by about $82 billion from January to August. The government sold state bonds worth $15 billion (55 billion riyals) this year.

“There have been a number of one-off spending proposals this year that have taken place, and those initiatives have added to the spending needs,” Masood Ahmed said.

The budget deficit caused project layoffs in Saudi Arabia. Companies working on infrastructure projects haven’t been paid for six months or more. Payment delays increased lately as the government wants to cut prices on contracts in order to preserve cash.

Despite the perpetual appeals to reduce output and support crude prices, OPEC has been refusing to do so as the cartel is trying to maintain its market share. However, last month the cartel signaled a possible change of stance, saying it might cut output and is ready to talk to other (non-OPEC) producers. But experts say OPEC’s statements are not important without a change of policy by its biggest crude producer Saudi Arabia.

RT

RT

RT, previously known as Russia Today, is a global multilingual television news network based in Russia. RT was the first all-digital Russian TV network.

One thought on “IMF Report Saudi Arabia Could Be Bankrupt By 2020

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    October 24, 2015 at 3:06 am
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    This report is a rumor against the Kingdom of Saudi Arabia, and I am making my comments as follows. The Kingdom follows a market share strategy with respect to oil prices and is interested in keeping its oil customers. The Kingdom cannot cut production alone in order to defend the price of oil. If the Kingdom cuts three million barrels of oil a day, Iran will soon pump that amount or more and Iraq can produce more oil as well. Oil frackers and other oil producers will produce more oil. Eventually, the price of oil will decline again. The Kingdom will lose more if it cuts oil production, and other oil producers will obtain temporary benefits. In fact, one can argue that other countries can cut oil production to defend the price of oil.
    In addition, the forecasting model of the IMF, if there is one, is really ‘joke’, and all models could not predict the crisis of 2007 before even one quarter. If oil price is assumed to be low for all these forecasting years, then many oil producers will be bankrupt but not the Kingdom of Saudi Arabia. Bankruptcy of many countries will negatively affect the global economy. I am sure RT knows very well that the IMF forecasting model is not accurate.
    The decline in oil revenues will not only affect public spending in the Kingdom of Saudi Arabia only but it will affect economically other nations connected to the Kingdom. Ten or eleven million foreign workers from many countries will be affected negatively, and their money transfer from the Kingdom to their nations will also decline. The Kingdom is having 50 percent of the entire population as foreign workers such as doctors, university professors, and many other professionals and workers. The Kingdom is helping those millions of workers from several Arab countries along with Pakistan, Bangladesh, Malaysia, Europe, and the like for giving them the opportunity to work and earn incomes and contribute to the Kingdom’s GDP. All those people, families, and countries will lose when oil revenues decline and budgetary problems appear. Moreover, the Kingdom’s military spending may decline, and the national security of the country may be affected as well. I am sure the Kingdom has a sound financial standing relative to other countries and has capable economists to adjust for the decline in oil prices, and has many national security professional to defend the Kingdom from Iran and terrorism and other forces..
    With respect to the causes behind the decline in oil prices, I can start first to show the causes behind the rising in oil prices, and the narrative can help to explain the causes of the decline, which have nothing to do with the Kingdom of Saudi Arabia. There are two causes: the fundamental and the secondary causes. The fundamental cause is the disastrous Presidency of the Bush family which had distorted the oil market in order for the American oil producers to make huge wealth starting from 1990. President Bush, the father, and through the American ambassador in Iraq, informed Saddam about their indifference if Iraq occupied the Northern part of Kuwait. Saddam decided to take all the country, which was the worst historical decision he made. The first Gulf War started, and the embargo was imposed on Iraq. Four million barrels of Iraqi oil a day were taken out of the oil market. The price of oil went up, and uncertainty became the norm of the oil market. President Bush, the son, invaded and destroyed Iraq in the second Gulf War, and the oil market became very tight again, given high demand for oil. Oil prices continued rising. The other basic effect of the Bush’s wars, Iran has become more powerful country. President Bush could not do anything to limit Iran military power. Oil prices rose and reached $140 in 2008. High oil prices led to the collapsed of several American industries from auto to airline to tourism. Unemployment rose, and millions of American workers lost their jobs and properties. Yet, oil price stayed at high level, and oil corporations made huge profits. The rate of profit in the oil industry gave many oil producers the opportunity to enter the oil industry to obtain part of the profit.
    The secondary cause for rising oil price is the Obama presidency. President Obama bombed Libya and destroyed the Qaddafi regime. This act took about two million barrels of the Libya oil out of the world market. President Obama also imposed sanctions on Iran and took about two million barrels of the Iranian oil out of the world market. So, these Bushes’ wars and President Obama’s bombing cut oil production, and the price of oil rose to a very reasonable level of around $100 a barrel up to 2014.
    Iran has become stronger politically in international affairs. One Iranian mullah declared that Sana’a, Yemen capital, has become another capital under the Iranian domination. This was forced the Kingdom of Saudi Arabia to defend its self against this rising Iranian threat in Yemen. So, the Yemen war has started, and the Kingdom now spends billions of dollars on the war and on strengthening the military capability of the country to counter the Iranian threat. And the military spending mostly goes to the American military industrial complex as a stimulus.
    At any rate, the current decline in oil price has been due to the absence of the American wars in the Middle East and to high level of oil production due to the entry of many oil producers to the oil industry. The American Fed Quantitative easing has generated deflationary spiral and economic slowdown in many countries, including the US economy, and has increased income inequality and poverty everywhere. The eventual outcome has been the reduction in aggregate demand which reduces the demand for oil and the demand for other commodities. This decline forces the price of oil to decline. And the price of oil will decline further. Oil countries must adjust their budgets and returned to normality. Hope that I have clarified the basic point that the Kingdom of Saudi Arabia should not be blamed for the decline in oil price and actually the world must thank the Kingdom for supplying more oil in the oil market when the world needed more oil when oil supply declined due to President Bush wars.

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