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Oil Cuts Add to Saudi Pain as GDP Contracts for Second Quarter

@The Eagle



And you think I do that unprovoked? Even in the other thread, it was a response to Hasani's offensive remarks about Iran and our economy.



What on earth are you on about? I'm talking about economy and recession, you're talking about "tactical matters"?

That is what you get when you get personal.. mods are watching you and your hatred for the Arabs.. what was bad in Sharf's post to call me hypocrite for giving him a like? I hope the mods will show you your place and educate you a bit about the rules in PDF, you act like a spoiled brat who wants to win arguments with desperate means..

You cling to a tactical level when discussing strategic matters..things do not work that way..

You derail threads, that is a fact mods must have noticed..
 
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Saudi balances recession, deficit in tough decision on energy reform

KHOBAR, Saudi Arabia/DUBAI (Reuters) - Saudi Arabia is expected to decide by the end of this month on the timing of domestic fuel and electricity price hikes that could risk pushing the economy further into recession, sources familiar with the matter told Reuters.

The dilemma over energy prices shows economic reforms, designed to eliminate a huge state budget deficit caused by low oil prices while weaning the economy off dependence on oil exports, are running into a difficult phase.

Austerity steps so far, including an initial round of energy price hikes announced in December 2015, have begun to reduce the deficit. But this has come at a high cost to the economy: data last week showed Saudi Arabia in recession during the second quarter, and unemployment among Saudis at 12.8 percent.


That means further austerity will be hard to introduce without risking a sharp economic slowdown which would deter the private investment that the reforms aim to attract. A prolonged recession could turn public sentiment against reforms.

A government official said Riyadh was delaying a decision on energy prices until it had finished designing a system of cash payments to lower- and middle-income households, which would partially compensate citizens for the pain of austerity.

“There are still some discussions over who is going to be compensated and who is not,” he said. “The government has to consider the implications of higher taxes and ways to mitigate risks for both gross domestic product growth and the budget.”

DELAY

At the end of 2016, officials indicated rises in heavily subsidized energy prices would occur around mid-2017. Along with water price reforms, the changes would save the government 29 billion riyals ($7.7 billion) in 2017, according to a long-term fiscal plan which Riyadh released in December.

But since then, the economy has slowed more than expected. The non-oil sector expanded only 0.6 percent year-on-year in the second quarter, casting doubt on the International Monetary Fund’s forecast of 1.7 percent non-oil growth this year.

The economy’s weakness has already caused Riyadh to partially reverse one austerity step: this year it restored financial allowances for civil servants that it had abolished last year, although it is now disbursing allowances much less generously than previously.

The timing of energy price increases may be another casualty of the recession. Although some sources said they still expected hikes to occur this year, others said they could be delayed into 2018.

One thing which could force a delay is the government’s plan to introduce a 5 percent value-added tax in January. The tax will hit domestic demand; if it is closely preceded by fuel price hikes, the impact could be severe.

Energy Minister Khalid al-Falih implied last week that the hikes were still on the cards for 2017, telling a Moscow conference: “We in Saudi Arabia are putting a lot of emphasis on energy efficiency. We will be reforming our energy prices in due course this year...”

Major Saudi newspaper Okaz, quoting anonymous sources, reported last month that gasoline prices would rise 80 percent by end-November, with 95 octane climbing to 43 U.S. cents a liter. Even then, Saudi prices would remain among the lowest in the world.

Sources said that hike was not set in stone, however. The IMF has been urging Riyadh to delay fuel price rises to protect the economy; it said last week that Saudi officials were not yet convinced, but were reconsidering the speed of austerity steps.

“The authorities indicated that they were considering the appropriate pace of fiscal adjustment given the weak growth,” the IMF said.

Even if gasoline prices rise sharply, other energy reforms may be watered down or delayed. Diesel prices - key for Saudi Arabia’s fleet of trucks - would increase only moderately, and prices of jet fuel would be raised only cautiously for fear of hurting the aviation industry, the sources said.

Under the fiscal plan, Riyadh intended to raise electricity prices for households this year. It is not clear if this will occur in 2017, however, partly because electricity prices are linked to restructuring and partial privatization of utility Saudi Electricity Co 5110.SE, still under consideration.

The government’s plan to sell shares in oil giant Saudi Aramco by the end of 2018 may limit any delays to energy reforms. Riyadh is keen to get a high valuation for the company - officials have talked of at least $2 trillion - and investors will want to see the new structure of energy price regulation before committing themselves.

https://www.reuters.com/article/us-...-decision-on-energy-reform-idUSKBN1CE1RN?il=0
 
Economic transitions are bound to be tough. Whether Saudi succeeds in transforming or not is a different matter, but the current recession comes as no surprise especially given the low crude oil prices which have stabilized around the $50bbl mark. A far cry from the $100bbl price mark 3 years ago.
 
The figures say otherwise.

Saudi Arabia is a big country and wealth distribution is as common problem in Saudi Arabia than any other country given its size and demography.

It is not a sign of weakness but a sign of strength that Saudi Arabia wants to move past the Oil based economy and towards cheaper efficient and sustainable means of energy.

Neither was Rome built in a day nor it was destroyed in a day.
 
Saudi Arabia is not oil dependant that seriously.


Vision 2030 foresees reducing Saudi Arabia’s dependence on oil by diversifying the economy and expanding the private sector. Despite these bold aims, the Kingdom’s economy remains dependent on the petroleum sector, which is dominated by the state. Last year, the oil sector accounted for 42 percent of gross domestic product (GDP), 90 percent of export earnings, and 87 percent of budget revenues. The bulk of this income is generated by state-owned oil company Aramco, leaving the country tethered to the oil market as its tries to reorient elsewhere.

Source - https://www.huffingtonpost.com/entr...-post-oil-economy_us_58f0fad8e4b048372700d7c9

It is seriously addicted to oil hence vision 2030 to ease of that addiction . A step in the right direction.
 

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