Saudi Arabia might be facing an impending economic crash soon.
Middle Eastern countries such as UAE and Saudi Arabia have built their fortunes on their ‘black gold’ or oil. The surge in oil demands and prices in previous decades have enabled these countries to enjoy such luxury. It is quite difficult to imagine an oil-rich country like Saudi Arabia will ever go bankrupt right?
But reports and statements from the International Monetary Fund (IMF) reveals that the country might face a big fiscal crisis within the next 5 years. The national GDP may not keep up with its expenditures if current economic trends and government expenditures continue. IMF warns that the Saudi Arabian government might have to cut back on its spending and review its policies regarding its oil products.
The IMF claims two reasons for this impending economic crash,
1. The continuing drop of oil prices in the international market as dictated by nations like America.
2. Increasing regional conflicts and surge of refugees.
3. Unnecessary government spending
Some of the major expenditures of the Kingdom in 2015 are as follows: $32 billion dole outs distributed to the public, for the celebration of King Salman Bin Abdulaziz Al Saud’s corontation, military spending with a defence budget of $80.8 billion making them the third most expensively funded military in the world; and lastly the war in Yemen being singlehandedly fought by KSA.
The influx of government spending on helping out refugees and even paying for labor has largely affected the country’s finances. In fact, last year alone they had been forced to delay projects, cut government spending and sell bonds amounting to $15 billion to domestic and foreign investors. However those measures hadn’t been enough as the country’s assets dropped $82 billion last year.
The resulting losses has been detrimental not only to the country as a whole, but even to the smaller scale of workers and companies. Some contractors had not been paid for their work for 6 months already. Almost all of the countries in the OPEC are reeling from the problem, but Saudi is one of the hardest hit as the biggest oil exporter with more than 80% of its economy relying on the oil industry.
Experts advise that OPEC and Saudi Arabia may have to make their move on adjusting international policies and prices on oil exportation. Indeed this situation is developing like a seesaw. While the rest of the world enjoys more affordable fuel, these “oil” countries suffer. And to save their economies, perhaps the whole world will have to share the financial burden with oil price hikes. Where do we strike the balance?
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