Saudi's projecting $39 billion deficit in 2015
AP/Fuel Fix:
The Saudis have substantial foreign assets they can use to fiance the deficit. The currently have $736 billion they can draw on. Many of the other producing countries do not have those resources. But it does show how much the current price structure effects their cash flow. Their dilemma is that if they restrict supply to raise prices, it is unlikely to work and will mainly benefit their competitors who are not OPEC countries like the US and Russia,
Saudi Arabia’s Cabinet on Thursday endorsed a 2015 budget that projects a slight increase in spending and a significant drop in revenues due to sliding oil prices, resulting in a nearly $39 billion deficit.There is more.
In a sign of mounting financial pressure, the Finance Ministry said the government would try to cut back on salaries, wages and allowances, which “contribute to about 50 percent of total budgeted expenditures.” That could stir resentment among the kingdom’s youth, who make up a majority of the population and are increasingly struggling to find affordable housing and salaries that cover their cost of living.
The price of oil— the backbone of Saudi Arabia’s economy — has fallen by about a half since the summer. Saudi Arabia is extremely wealthy, but there are deep wealth disparities and youth unemployment is expected to mushroom absent a dramatic rise in private sector job creation. The International Monetary Fund says almost two-thirds of employed Saudis work for the government.
A the height of Arab Spring protests sweeping the region in 2011, King Abdullah pledged $120 billion to fund a number of projects, including job creation and hikes in public sector wages. The move was largely seen as an effort to appease the public and blunt any challenges to monarchical rule.
Associate Fellow and energy researcher at Chatham House, Valerie Marcel, said massive government spending across the Gulf on public sector salaries is “really the thing that keeps the lid on the bottle.” She said that for now the Arab monarchies of the Gulf can afford to run deficits due to surpluses accumulated over the years from high oil prices.
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The Saudis have substantial foreign assets they can use to fiance the deficit. The currently have $736 billion they can draw on. Many of the other producing countries do not have those resources. But it does show how much the current price structure effects their cash flow. Their dilemma is that if they restrict supply to raise prices, it is unlikely to work and will mainly benefit their competitors who are not OPEC countries like the US and Russia,
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