Saudis Risk Draining Financial Assets in 5 Years, IMF Says

Such was the price to be paid for King Abdullah’s economic war on America’s oil independence from shale before he passed away. The Saudi-friendly IEA has said America will never take the crown from Saudi Arabia whereas a Saudi prince has mentioned oil will never see under $100 per barrel ever again. The baton has now been passed to King Salman and he will be continuing the attack for an indefinite duration.

In the end, it was a matter of who had more asset reserves: American oil companies or the Saudi coffers built on decades of exports.

In this game of economic chicken it looks like the American oil companies who are already down to the “bare bones” might be the first to blink, however, total destruction on both sides shouldn’t be dismissed.

 

  • Estimate based on current fiscal policies amid oil’s slump
  • Saudi authorities are already planning spending cuts

Saudi Arabia may run out of financial assets needed to support spending within five years if the government maintains current policies, the International Monetary Fund said, underscoring the need of measures to shore up public finances amid the drop in oil prices.

The same is true of Bahrain and Oman in the six-member Gulf Cooperation Council, the IMF said in a report on Wednesday. Kuwait, Qatar and the United Arab Emirates have relatively more financial assets that could support them for more than 20 years, the Washington-based lender said.

Saudi authorities are already planning spending cuts as the world’s biggest oil exporter seeks to cut its budget deficit. Officials have repeatedly said that the kingdom’s economy, the Arab world’s biggest, is strong enough to weather the plunge in crude prices as it did in similar crises, when its finances were under more strain.

But the IMF said measures being considered by oil exporters “are likely to be inadequate to achieve the needed medium-term fiscal consolidation,” the IMF said. “Under current policies, countries would run out of buffers in less than five years because of large fiscal deficits.”

Reserve Accumulation

Saudi Arabia accumulated hundreds of billions of dollars in the past decade to help the economy absorb the shock of falling prices. The kingdom’s debt as a percentage of gross domestic product fell to less than 2 percent in 2014, the lowest in the world.

The recent decline in the price of crude, which accounts for about 80 percent of Saudi’s revenue, is prompting the government to delay projects and sell bonds for the first time since 2007. Net foreign assets fell to the lowest level in more than two years in August, with the kingdom fighting a war in Yemen and avoiding economic policies that could trigger social or political unrest.

Full article: Saudis Risk Draining Financial Assets in 5 Years, IMF Says (BloombergBusiness)

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