Saudi Arabia (Photo : Reuters)
The oil-rich Kingdom of Saudi Arabia would have to tighten its belt further as prices of oil in the international market continues to decline.
At $50 a barrel, the kingdom would need to cut corners further, possibly delay infrastructure projects and sell bonds for the first time since 2007, reports Bloomberg. The International Monetary Fund (IMF) forecasts that Saudi Arabia's budget deficit in 2015 would reach $107 billion or 400 billion riyals.
The IMF estimates that break-even price of oil in 2014 for Saudi's budget was $106 a barrel, almost a third higher than the $69 a barrel in 2010. Share of oil revenue has gone down to 81 percent from 90 percent.
In a report in August, Bank of America Merrill Lynch economist Jean-Michel Saliba pointed out that Saudi Arabia could still afford its oil regime and economic status quo only in the near term. Saliba warned, "The domestic macro cost of its unchanged policy choices are likely to become more acute and apparent."
Among the measures that the government is eyeing are to phase out fuel subsidies and invest in renewable energy. The subsidy of 16 cents per liter has been taken for granted by Saudi motorists. If all fuel subsidies are removed, government revenue would be boosted equivalent to 8 percent of the national economic output, reckons James Reeve, deputy chief economist of Samba Financial.
Reuters reports that on Thursday, Brent crude oil prices rose above $50 for the first time in a week due to lower stocks in the U.S. and peaking production.
