Saudi Arabia feels the squeeze

The slide in the oil price has blown a hole in Saudi Arabia’s budget with the deficit reaching 15% of GDP last year.

The slide in the oil price has "blown a hole" in Saudi Arabia's budget, says Tim Maverick on Wallstreetdaily.com. It needs an oil price of more than $100 a barrel to balance its books and keep a restive and cosseted population happy: in 2014, annual energy subsidies per person in the 29 million-strong population came to $3,400. Last year the budget deficit reached 15% of GDP; this year it is expected to hit 13%.

The government has cut back, but still faces a "vicious liquidity squeeze", says Ambrose Evans-Pritchard in The Daily Telegraph. It has trimmed subsidies, borrowed £27bn on the domestic market, announced its first international bond issue since the 1990s and tapped global banks for £10bn. But it has continued to hoover through its big foreign exchange reserves at a rapid rate.

In the summer of 2014 these totalled $740bn; now that figure is $582bn. Burning through the cash pile tends to tighten monetary policy, as there is less money in the overall system. It is getting more expensive for banks to lend to each other.

Meanwhile, there have been reports that the government is to pay suppliers with IOUs in order to conserve cash. A further problem is that Saudi Arabia has pegged its currency, the riyal, to the dollar for decades. Breaking the peg would ease the squeeze on revenues in riyal terms but at the cost of political credibility and a jump in inflation. Saudi Arabia is in for a rocky ride.

Recommended

I wish I knew what an emerging market was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what an emerging market was, but I’m too embarrassed to ask

This week's “too embarrassed to ask” explains what emerging markets are, and why you might want to invest in them.
9 Sep 2020
Bullish investors return to emerging markets
Stockmarkets

Bullish investors return to emerging markets

The ink had barely dried on the US-China trade deal before the bulls began pouring into emerging markets.
27 Jan 2020
Why investors should beware of India’s surging stockmarket
Emerging markets

Why investors should beware of India’s surging stockmarket

The BSE Sensex benchmark index has soared by 90% since March, largely driven by foreign investors. But India's bull market is very vulnerable.
15 Jan 2021
More upside to come for the oil price
Oil

More upside to come for the oil price

The Brent crude oil price its highest level since last February this week. And there could be more gains to come.
14 Jan 2021

Most Popular

Bitcoin: fool’s gold or the new gold?
Bitcoin

Bitcoin: fool’s gold or the new gold?

With bitcoin hitting new highs last week, and close to becoming a mainstream investment, is it really gold for the 21st century?
15 Jan 2021
Forget austerity – governments and central banks have no intention of cutting back
Global Economy

Forget austerity – governments and central banks have no intention of cutting back

Once the pandemic is over will we return to an era of austerity to pay for all the stimulus? Not likely, says John Stepek. The money will continue to …
15 Jan 2021
The MoneyWeek Podcast: bitcoin special
Bitcoin

The MoneyWeek Podcast: bitcoin special

Merryn talks to bitcoin experts Dominic Frisby and Charlie Morris to get the lowdown on the cryptocurrency to find out why it's such a huge global phe…
15 Jan 2021
Free 6 issue trial then continue to