Baku, Azerbaijan, Oct. 22
By Aygun Badalova - Trend:
With oil prices stuck at $50 per barrel, the Saudi Arabia's annual export income will be around $130 billion lower this year in comparison to last year, Jason Tuvey, Middle East Economist at British economic research and consulting company Capital Economics said in a report obtained by Trend.
"As a result, the current account position is likely to have slipped from a surplus of 10.9 percent of GDP in 2014 to a deficit of around 7.5 percent of GDP this year", he said.
"The crucial point here is that Saudi Arabia is now reliant on foreign currency in order to fund domestic spending," Tuvey added.
Over 90 percent of Saudi Arabia's revenue is dependent on oil, and with prices dropping by more than 50 percent in the last year, the government is struggling to deal with the financial pressure.
Earlier this month, reports suggested that the Ministry of Finance has ordered government entities to freeze public hiring, halt new infrastructure projects and stop public purchases of new cars and furniture.
The International Monetary Fund expects the Saudi government spending in 2015 to remain elevated despite a sharp decline in oil prices which could put pressure on government finances, resulting in a surge in fiscal deficit. Saudi Arabia's government is projected to run a fiscal deficit of about 20 per cent of GDP in 2015, according to IMF.
Real GDP growth is projected to slow to 2.8 percent this year, and then further to 2.4 percent in 2016 as government spending begins to adjust to the lower oil price environment.
Oil prices have been experiencing dramatic fall since the middle of 2014. The position of Saudi Arabia, which is the largest producer and exporter within OPEC, has been an obstacle in cartel's quota reduction. The country and other Gulf states pushed OPEC's strategy shift last year to defend market share rather than cut output to support prices.
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