The world’s number one oil exporter has at last succumbed to a steep decline in oil prices and announced, on September 5, that it would for the first time reel in its spending plans.
Saudi Arabia’s finance minister, Ibrahim Alassaf, confirmed in an interview with CNBC Arabia that the kingdom would do so in order to plug its widening budget deficit, set to run at $120bn this year, and to reduce the rate at which it’s eating up its reserves.
In order to cover its current levels of expenditure, Saudi Arabia needs an oil price of approximately $100
With oil at less than half the price it was a year ago, Saudi Arabia – which relies on the black stuff for 45 percent of its GDP and 90 percent of its export earnings – has been reluctant to alter its spending plans until now. “We have built reserves, cut public debt to near-zero levels and we are now working on cutting unnecessary expenses while focusing on main development projects and on building human resources in the kingdom,” said Alassaf in the interview.
The finance minister hasn’t yet confirmed where the cuts will fall, although he suggested that recent projects will be the first to suffer delays. In order to cover its current levels of expenditure, Saudi Arabia needs an oil price of approximately $100, more than twice its current price, and a failure to adjust its spending in kind will eat away at its reserves – more than $600bn at last count.
The kingdom has relied upon oil-derived revenues to fund its social spending programmes for some time, and in doing so Saudi Arabia has managed to avert the unrest that has so characterised some of its Middle Eastern counterparts. Without the same levels of generous spending, the kingdom might struggle to maintain the level of stability it has done up until now.
