Saudi dodges financial crisis
Saudi Arabia has dodged a financial crisis due to low oil prices by slashing state spending and borrowing tens of billions of dollars abroad, but now it faces a tougher challenge: getting the economy growing again. In a series of interviews with Reuters reporters last week, senior Saudi officials said reforms announced on national television by Deputy Crown Prince Mohammed bin Salman a year ago had stabilized state finances enough for the government to begin focusing on investing in the economy.
Spending cuts are shrinking a $98 billion budget deficit that was created by oil’s plunge. Foreign investors are eagerly buying Saudi bonds, and the government has begun to shake up its bureaucracy and simplify regulation, promising efficiency gains.
Movements in the foreign and exchange and bond markets show last year’s speculation that Riyadh could default on its debt or devalue its currency has almost disappeared.
Vice Minister for Economy and Planning Mohammed Al-Tuwaijri said efforts to repair state finances were moving faster than officials’ initial, conservative projections. The deficit in the first quarter of 2017 was about half the original estimate. “Generally speaking everything we announced and talked about tended to be toward the conservative scenario - that included our ability to execute everything on time, our ability to borrow.”
So Riyadh is now starting a new phase of reform, officials said: developing non-oil industries such as mining, logistics, ship repair, entertainment, and automotive and military manufacturing that will let the economy prosper regardless of oil prices. “There are many lowhanging fruits,” said Tuwaijri. Riyadh aims to raise over $200 billion in coming years by selling stakes in oil giant Saudi Aramco and other assets. It will funnel this money into non-oil industries via vehicles such as sovereign wealth funds. Private firms will be encouraged to invest beside the government with incentives such as soft loans.
Officials stressed they would be flexible when raising money using methods ranging from stock market listings to private equity deals and careful when spending it, since they would only allocate money to projects that looked commercially viable. They argued that by creating jobs and economic growth, the surge of investment would head off any discontent from Saudis whose living standards are being squeezed by tax rises and subsidy cuts needed to reduce the budget deficit. —Reuters