BESIDES its international weight, the Kingdom of Saudi Arabia is the economic locomotive for GCC countries; so all nations have been closely monitoring news on its budget for the coming year, even before the announcement of the Custodian of the Two Holy Mosques King Salman bin Abdulaziz in this regard.
In fact, many Saudis and GCC citizens were worried due to the speculations on various media platforms that the new budget might include procedures which may indirectly lead to recession that will definitely affect other GCC countries. Nevertheless, they breathed a sigh of relief and their concerns vanished when the budget was announced.
If we analyze the situation, we can say that the much talked about budget deficit is hypothetical considering the big surplus in the financial reserve of the Kingdom. A large portion of the supposed deficit was allocated for strategic infrastructural projects included in the five-year-plan that the Kingdom is implementing now. In addition, the Saudi government borrowed from local banks to encourage local credit and to invest the huge liquidity currently available in GCC banks. Actually, the deficit is less than what was speculated through the media which focused on the alleged depletion of the financial reserve and sovereign funds.
The good aspect of this issue is that the price of a barrel of oil in the new budget is $26. This means there will be surplus even if the price of oil decreases to $20 a barrel. Accordingly, there is no fear over the Saudi economy, considering the gigantic and profitable projects it is implementing at the moment like the train, railways and expansion of the Two Holy Mosques to accommodate more pilgrims.
Some people may have not realized that the procedures to correct flaws in the structure of fees for services and commodities, such as petrol, electricity and water, have not reached the extent of negatively affecting the income of rank-and-file employees and ordinary citizens – because the increase is minimal compared to the income. This is in addition to the fact that fees increase only after conducting a comprehensive study.
Therefore, if Finance Minister Ibrahim Al-Assaf says the government will re-consider the budget and prices of commodities which were modified after six months, this entails the procedures might be changed to identify reasons behind the flaws in order to correct them and to avoid harmful ramifications.
Through its new budget, the Kingdom has proven that its economy is strong and it can surmount economic barriers caused by the movement of the international oil market, particularly the tough competition brought about by the decision to lift sanctions on Iran. Add to this the large quantity of oil which Russia pumped into the markets. Nonetheless, such an emergency will not impact the GCC economies which are different from Iran and Russia in terms of oil production cost or lack of liquidity of foreign currencies in the two countries – particularly the Iranian economy which cannot endure such oil price decline. On the other hand, the GCC countries can survive even if the price of oil decreases to $20 per barrel. In addition, the GCC countries do not suffer from economic crises like Iran and Russia.
The government of the Custodian of Two Holy Mosques disproved all expectations such as imposing taxes, unreasonable increase in fees for services and reducing the number of development projects through its budget. It reflected a promising and stable economy, taking into consideration that the deficit in the coming years will be much lesser because the gigantic infrastructure projects will not be repeated in each budget. Furthermore, it is expected that five years from today, the budget will be allotted for salaries, aid and development of institutions – a manifestation of the strong position of the GCC economies.
By Ahmed Al-Jarallah – Editor-in-Chief, the Arab Times