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Bumper spending means Saudi Arabia will grow by 3.5% this year but it can’t last.
OPEC’s largest producer Saudi Arabia is to run a fiscal deficit projected at around 20% of GDP in 2015 as a result of the steep fall in oil revenues, the IMF said this week. Local investment bank NCB, in a report also issued this week, forecasts a deficit of $20.6bn for 2015. NCB notes that this is the first deficit since 1998 and contrasts with an $81.2bn surplus for 2014.
With the kingdom, and Opec, sticking with a strategy of maximizing its oil market share rather than cutting output to support prices (see p13), Saudi Arabia’s oil revenue is likely to remain at current relatively-subdued levels for some time to come, possibly several years if oil futures markets are to be believed: Brent futures for delivery four years hence are trading at around $73/B. If Saudi Arabia maintains its current elevated level of budget expenditure in the near future under its counter cyclical policy, then drawing down its reserves is likely to continue.
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