We wrote last week about the exodus of expats from Saudi Arabia due the country’s imposed tax on them. This has hurt Saudi economy as the country is totally dependent on foreign workers to operate. Today Saudi released its budget for 2019. As the economy has been suffering, the country doubles down on spending and handouts to keep the population from protesting. CNBC writes;
The budget will boost spending even as Saudi Arabia endeavors to close its budget deficit, indicating Riyadh’s priority to spur growth in an economy hurt by lower oil prices. State spending will increase by more than 7 percent next year to 1.106 trillion riyals ($295 billion) from 1.030 trillion riyals, in line with a September pre-budget statement, according to the country’s finance ministry.
Interestingly the whole budget is based on an oil price estimate of $80 a barrel which is over 40% above current oil price. Even with this assumption would result in 4.2% in budget deficit. Various analysts out there point out the absurdity of all this. Bloomberg quotes several analysts;
The budget “defies the laws of arithmetic. It projects a 9 percent increase in revenue against the backdrop of lower oil prices and production cuts by OPEC members”
Jason Tuvey, the London-based senior emerging market economist at Capital Economics:
“Saudi Arabia’s budget for 2019 outlined further fiscal loosening, but the government seems to be relying on optimistic assumptions for oil prices to rise to almost $80 per barrel,” he wrote in a report titled “Saudi budget: wishful thinking”
To further show the absurdity of the Saudi oil price assumption. Their smaller neighbor to the east which they have tried to not only invade but shut of the world Qatar assumes much lower oil prices for 2019. Qatar assumes oil prices of $55 a barrel. Reuters wrote earlier;
Much of the expected revenue windfall is due to higher energy prices; next year’s budget assumes an average oil price of $55 a barrel, up from $45 in the 2018 budget.
In essence the whole Saudi economy and budget is completely dependent on Oil prices rallying. Considering where oil prices seem to be heading, things are not looking good. The fact that the only real development in the Saudi economy has been increased revenues from music concerts by the likes of Enrique Iglesias and Black Eyed Peas can’t qualify for substantial economic development. A country totally dependent on foreign workers keeping the country and economy from crashing, the need to live in fantasy land and in denial might seem like a good option, as realistic assumptions don’t look good.