Lagard in Saudi Arabia

By Jumana Ghunaimat

تم نشره في Sun 30 October / Oct 2016. 12:00 AM - آخر تعديل في Sun 30 October / Oct 2016. 02:02 AM
  • Jumana Ghunaimat

All the way from Saudi Arabia, Managing Director of the International Monetary Fund (IMF), Christine Lagarde, advises oil countries to control spending and explore means of diversifying revenue, despite the relative increase in oil prices recently.

Ahead of the lot, Saudi had already begun implementing a series of measures to address the financial deficit that has already culminated, primarily due to the catastrophic drop in oil prices worldwide. Among these measures was the increase of oil derivative prices, domestically, the shrinkage of expenditure of subsidies, and the lowering of public pays and salaries. As a result, the Kingdom of Saudi Arabia has been able to downsize expenditures noticeably, in a way that has reflected on the public deficit, decreasing it by 10 per cent off of next year’s GDP.

According to published figures, Saudi budget deficit for the year 2016 amounted to SAR326.2 billion, approximately USD87 billion. To bridge the gap, the government resorted to domestic and foreign borrowing, with an additional USD38 billion to be borrowed, according to the Saudi Ministry of Finance.

Now, what is obvious for all that is mentioned above, is that the Saudi economy is no longer what it was; with oil prices dropping simultaneously as the costs of war build up for Saudi Arabia, the excess capital Saudi Arabia once was so accustomed to is now out of the question, evidently. On the other side, one thorough look into the steps made, in such a short time; the measures adopted, topped by the declaration of the ambitious “2030 Vision” and entailed economic programme, one could tell Saudi Arabia is now fully aware of the scale of challenge it faces and the perils staring them in the face. They also know that failing to take these problems seriously would culminate the problem even further.

Nonetheless, with all the awareness that is shown in these declared steps and plans, is it enough?

In light of the possibility that the recession in oil prices is going, probably, to endure, the measures adopted by the Saudi government would just as probably be not enough. It is no longer sufficiently effective or efficient to depend on oil, as it no longer yields the billions of dollars it once did. More so, the intensifying condition, and the compound situations at hand, draining resources, and straining them beyond imagination, do not seem to be coming to an end soon.

Therefore, even though the IMF had so warmheartedly praised Saudi “reforms” —if it is indeed suitable to refer to them as so, much more is needed; even more difficult decisions have to be placed. And the same goes for all Arab societies regardless of financial capacities.

The IMF sees that the Brethren Kingdom has begun rectifying their financial situation, while calling upon Saudi decision makers to maintain course on the mid-term, which will include the increase of energy and power prices domestically, which stand on relatively low compared to global medians.

Lagarde, who is currently in a visit to Saudi Arabia to participate in the Joint Financial Ministers Committee meeting with the governors and directors of Gulf central banks and international financial organisations, says that the Gulf economy is dependent upon one commodity, and that this is dangerous. She then carried on to advising Gulf countries to diversify investment and economic components, as well as facilitate private business and allowing for private equity to contribute to the development of economy through investment to drive progress in other sectors, in addition to calling for the empowerment of the domestic female component.

From the IMF’s point of view, reforms in Saudi Arabia, the world’s top oil producing country, do not differ in nature and terms from what is demanded of Jordan, the non-oil country; enhancements in revenue and yielding need to be placed just as well, including selective commodity and value added taxation for Gulf Cooperation Council (GCC), as well as increased spending control

Seemingly obvious, it is impossible to decide on the prospect or future of the Saudi economy. Even the director of the world’s most prominent financial institution has no ready recipes for the Saudi situation, or any other standard issue solution to be disseminated to all countries of the world, regardless their economic structure and scale.

Moreover, positive analyses of the Saudi situation indicate Riyadh know exactly what they are up against, and are willing to confront these challenges and execute reforms, including the diversification of revenue sources. On contraire, others seem to think that Saudi reforms have come in too late, which may cause results to fall short on planned objectives.

Regardless, Saudi has provided a model example on economic reforms; from diagnosis to implementation of domestically devised recipes, by Saudis, to address domestic economic issues. That is beside the point of whether or not the recipe works, what matters is that it was devised by the Saudis themselves.