Investors and economists watching Saudi Arabia's economy over the past few months have been puzzling over something — where is the kingdom's oil windfall going?
With crude prices over a $100 a barrel and production at over 10 million barrels a day, the country is in a rare sweet spot. The kingdom is making about $1 billion from oil exports every day, putting it on track to record its first budget surplus in nearly a decade and the first since the rise of Crown Prince Mohammed bin Salman. How he spends it will be closely watched.
The answer - he won't. Or at least not yet. Finance Minister Mohammed Al-Jadaan said this time the surplus will accumulate in a government current account held at the central bank until the end of the year. After that, it'll be used to replenish foreign currency reserves with any extra potentially transferred to sovereign wealth funds - including the powerful Public Investment Fund that’s become the main engine of state-investment in the domestic economy.
It's a key part of Prince Mohammed's plan to break the boom-bust cycle that plagued Saudi Arabia in the past. Previous budget surpluses were spent on public sector salaries, large infrastructure projects, and big chunks of it were put into low yielding but safe investments like US treasuries. Oil surpluses created an economy whose fortunes rose and fell with the oil price, rather than a rainy day fund.
Prince Mohammed wants to shake off the oil curse, but avoiding it will be tough. Global inflation is rising, the Saudi banking system is struggling with the tightest liquidity conditions in years, and external investor backing for the Prince's biggest initiatives to wean the economy off oil has yet to arrive. The temptation when billions of dollars are flooding into government accounts will be to try and tackle these problems by throwing money at them.
No comments:
Post a Comment