The Middle East’s biggest economy, Saudi Arabia may run out of financial assets within the next five years if the government maintains its current policies, warns the International Monetary Fund.
Saudi Arabia is expected to run a budget deficit of 21.6 percent in 2015 and 19.4 percent in 2016, according the IMF’s latest regional economic outlook.
The country needs to adjust spending, the IMF urged.
The IMF outlined two key factors shaping the region’s outlook. They are spreading and deepening regional conflicts and slumping oil prices.
The conflicts have given rise to large numbers of displaced people and refugees, on a scale not seen since the early 1990s, according to the report.
According to the research, many experts suggest low oil prices will remain in place for the foreseeable future.
OPEC members Saudi Arabia, Iran, Iraq, Kuwait, Qatar, UAE, Algeria and Libya have all seen their revenues drop sharply as a result of a decline in oil prices.
Saudi Arabia is currently facing a budget deficit for the first time since 2009. The crude price decline has strongly influenced the kingdom’s economy since oil sales account for about 80 percent of its revenues. It has prompted the government to cut spending, delay projects and sell bonds.
The country’s net foreign assets fell by about $82 billion from January to August. The government sold state bonds worth $15 billion (55 billion riyals) this year.
The budget deficit caused project layoffs in Saudi Arabia. Companies working on infrastructure projects haven’t been paid for six months or more. Payment delays increased lately as the government wants to cut prices on contracts in order to preserve cash.
Despite the perpetual appeals to reduce output and support crude prices, OPEC has been refusing to do so as the cartel is trying to maintain its market share. However, last month the cartel signaled a possible change of stance, saying it might cut output and is ready to talk to other (non-OPEC) producers. But experts say OPEC’s statements are not important without a change of policy by its biggest crude producer Saudi Arabia.
World Bank reiterates willingness to cooperate with AIIB
World Bank President Jim Yong Kim said on Thursday that the bank looks forward to enhancing cooperation with the Asian Infrastructure Investment Bank (AIIB).
When meeting with AIIB President-designate Jin Liqun, Jim said "I look forward to further strengthening our existing strong relationship and identifying specific areas of future cooperation, including co-financing opportunities."
Jin made his debut in Washington on Wednesday, saying the AIIB is not a rival to the World Bank and other existing multilateral development banks but is cooperating with them very smoothly.
"Hopefully the AIIB will also be a boost to the reform process in those institutions," he added when making a speech at the Brookings Institution, a Washington-based think tank.
He said the China-led multilateral institution will be built into a new type of development bank with "21st century governance."
The World Bank said in a statement on Thursday that it has been providing extensive assistance to the AIIB to help it get ready for business.
The two institutions share the goal of providing financing for much-needed infrastructure to help countries boost their economies, improve services for their people, create jobs and reduce poverty, according to the statement.
The AIIB has 57 prospective founding countries including several US allies and will have an authorized capital of 100 billion US dollars. It is expected to start operation at the end of this year.