Riyadh, Saudi Arabia.
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The oil prices crashing have triggered decreasing demand, fears of the world trade war and the supply of growing crude could more than double the budget deficit of Saudi Arabia, warned an economist of Goldman Sachs.
The bank's prospects have highlighted pressure on the kingdom to make changes to its gigantic spending plans and budgetary measures.
“The deficits on the budgetary side that we will probably see in the countries of the CCG (Gulf Cooperation Council), in particular the major countries like Saudi Arabia, will be quite important,” Farouk Soussa, Middle East and North Africa told Goldman Sachs on Wednesday.
The kingdom's expenses have increased due to the 2030 vision, a sweeping campaign to transform the Saudi economy and diversify its sources of income far from hydrocarbons. A centerpiece of the project is Neom, a mega-region not yet populated in the desert roughly the size of the Massachusetts.
The plans for the Neom include hyper-futurist developments which, in total, were estimated at 1.5 billion of dollars. The kingdom also hosts the 2034 World Cup and the 2030 World Expo, both sadly loaded.
Digital rendering of the Line Project project in Neom in Saudi Arabia
The line, Neom
Saudi Arabia needs oil at more than $ 90 a barrel to balance its budget, estimates the international monetary fund. Goldman Sachs this week has reduced its end -of -year oil price forecasts this week in $ 62 to a barrel for the crude brent, down compared to a previous forecast of $ 69 – a figure which, according to bank economists, could more than double the budget deficit of $ 3024 in 2024.
“In Saudi Arabia, we believe that we will probably see the deficit go from about $ 30 to $ 35 billion to around $ 70 to 75 billion dollars, if oil prices remained around $ 62 this year,” said Sousa.
“This means more loans, it probably means more expense reductions, it probably means more sale of assets, everything above, and it will have an impact on both national and potentially even international financial conditions.”
The financing of this level of deficit in international markets “will be difficult” given the tremor of international markets at the moment, he added, and probably means that Riyadh will have to examine other options to fill their funding lake.
The kingdom still has a significant head height to borrow; Their debt / GDP ratio in December 2024 is just under 30%. In comparison, the ratios of the debt / GDP of the United States and France by 124% and 110.6%, respectively. But $ 75 billion in debt emissions would be difficult to absorb for the market, noted sousa.
“This debt / GDP ratio, although comforting, does not mean that the Saudis can issue as many debts as they wish … They must examine other remedies,” he said, adding that these remedies include the reduction in capital expenditure, the increase in taxes or the sale of more of their national assets-like SADAD ARAMCO and SABIC. Several Neom projects can be found on the cutting block, predict regional economists.
Saudi Arabia has a credit note A / A-1 with a positive perspective of the Global S&P notes and an A + note with a stable fitch perspective. Which combined with high foreign currency reserves – $ 410.2 billion in January, According to Ceic data – Put the kingdom in a comfortable place to manage a deficit.
The kingdom also deployed a series of reforms to stimulate and deactivate foreign investments and diversify sources of income, which S&P Global said in September “will continue to improve economic resilience and economic wealth of Saudi Arabia”.
“Thus, the Saudis have a lot of options, the mixture of all these elements is very difficult to preliminary, but we certainly do not look at a kind of crisis,” said Sousa. “It's just a question of what options they opt to meet the challenges they face.”
World benchmark Bully was negotiated at $ 63.58 per barrel Thursday at 9:30 am in London, down approximately 14% from the start of the year.
