The price of oil still remains roughly half of what it was nearly three years ago, yet Saudi Arabia appears to be in somewhat better shape when it comes to the Kingdom’s budget. The reason stems from one financial firm’s assessment that the Saudi budget deficit will be smaller than expected.
Bank of America had been predicting a nearly 17 percent drop in the Kingdom’s GDP, but has now revised that to 12 percent. While that’s hardly cause for celebration, it will mean that added revenue will be available to help implement the Vision 2030 plan. This is meant to broaden the scope of the country’s production areas so that it’s not so heavily dependent upon oil.
For years, the Saudi coffers were overflowing due to the seemingly never-ending need for more and more oil, a situation that’s seen a dramatic decline due to the surge in shale deposit development. As a result of such changes, the Saudis undertook budget cutting moves that have been painful, especially for areas of the country that have always needed state assistance. However, those austerity measures were temporarily suspended after unrest emerged
Another drastic change that figures to help reduce the deficit in the next few years is the Saudi Aramco IPO that’s scheduled for next year. While only five percent of the company will be sold to stockholders around the world, this was once an unthinkable consideration.
The Saudi’s problem is that the price of a barrel of oil isn’t expected to go above $60 per barrel, yet to balance the Saudi budget requires a $98 per barrel price. That’s something that may never come again, given that shortages that would ordinarily drive up prices appear to be a thing of the past.