Saudi Economy Will Remain Coupled To Oil Prices

An IMF technical study published last month finds that oil prices have historically been the key variable affecting Saudi Arabia’s economic performance, and that “a longer-lasting period of low oil prices has a more significant impact” than a temporary drop.

So far, so obvious. But, not only does the study, which looks at “the impact of [historic] oil price declines and interest rate increases on the Saudi economy,” find oil price to be a far more important determinant of macroeconomic and financial outcomes than interest rates, it struggled to find anything else that matters.

The IMF draws parallels between the current situation and that of 1982-86, when Saudi oil revenues fell by 50% in an over-supplied market. From 1981-85 real GDP fell by a cumulative 25% and fiscal and external balances moved into deficit. Starting in 1981 with a large surplus and net financial assets estimated at around 60% of GDP, by 1990 these assets had been largely depleted “despite sharp government expenditure reductions,” the IMF says. (CONTINUED - 937 WORDS)


table Oil Price Declines And Changes In Production*