Sunday, October 23, 2016

Oil prices and Saudi Economy-3

Despite being the largest producer of low cost oil, the government finances are not going well and being the perception that they are one of the wealthiest nations on earth does not help that they have pockets of poverty all over the place despite providing generous subsidies and perks to their citizens. When the oil prices were high all was fine and it seems like the party would not end so soon. But times change fast but it took a while for the Saudis to realize that they are burning cash. On top of this the Yemen war and the Syrian War has made their expenses much higher. As they are now running an almost 100 billion dollar budget deficit, you will see more changes coming to the Saudi society as construction slows down and companies goes bankrupt suddenly and workers not getting paid. For this there is some silver lining that the most of workers on the construction site are poor third world workers who have been left stranded with not getting paid for months as the construction companies relied heavily on the Saudi Government for their contracts. I know that reforms would come slowly but it will be very painful for the Saudi People to get a grasp of this as they are not used to this kind of belt tightening for a long time. But only time will tell how much they will succeed without generating resentment and protests from their people. From the looks of it right now they are trying to control the oil market by cutting production so the signs are that they are still relying on the higher oil prices to bail them out. I am not sure this will work in the long term but the painful reforms that are needed will not come in the near future. They still can raise money by taxing the foreigners and introduce other kinds of taxes but they will have to tax everybody in order to raise revenues and stop spending money on arms and conflicts that does not improve the lives of their people.

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