Saudi urged to curb spending

Saudi Arabia has emerged intact from the global fiscal crisis given its massive assets but the world’s dominant oil power needs to put brakes on its spirally public spending including subsidies, according to experts.

Scores of officials and experts attending a global economic forum in Riyadh last week stressed that the Gulf Kingdom, the largest Arab economy, has succeeding in countering the crisis by pursuing what they described as a counter-cyclical policy involving hiking expenditure to keep growth.

Globally, the conference found that China, which became the world’s second largest economy in 2011, remains the “bright spot” amidst global uncertainty.

Experts attending the three-day forum under the theme “stability, growth and jobs” said it covered a host of issues, including Saudi Arabia’s economic and fiscal policies, the global economic and oil market issues, further reforms of the Saudi capital market, housing policies and programmes, and how to address the employment gap among the younger generation of Saudis.

“In analyzing the external environment, panelists agreed that China has remained a bright spot in the midst of a fog of uncertainty and that the Eurozone has re-emerged once again as a major risk to global financial stability and economic growth,” said Ali Aissaoui, senior consultant at the Dammam-based Arab Petroleum Investment Corporation (Apicorp), an affiliate of the 10-nation Organization of Arab Petroleum Exporting Countries (OAPEC).

“In this context, Saudi Arabia, which has pursued a countercyclical fiscal policy (building buffers during oil price upswings to be used during downswings) has managed to emerge from the 2007-2009 financial crisis virtually unscathed,” he said in a brief comment sent to Emirates 24/7.

Looking forward the same buffers should allow it to weather a possible breakdown of the Eurozone, he added.

“However, panelists cautioned against complacency, pointing to a long list of policy priorities, including diversifying fiscal resources, moderating spending (including energy subsidies) and speeding up growth in the non-oil sector.”

Turning to the oil market, he said participants agreed that short-term prices could remain hovering around $100 a barrel, Saudi Arabia’s current preferred price.

 In the medium term, the IEA’s tentative assessment of the impact of a deferred MENA upstream investment case, running one-third below its central scenario, has shown that real oil prices ($2010) could rise to $150 by 2016, he said.

In the long-term, the IMF’s research staff members have most recently developed an original model of the world oil market empirically indicating that real oil prices ($2011) could double, permanently, over the coming decade.

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