Jakarta –
Saudi Arabia’s decision to extend its 1 million bpd oil production cut through August 2023 could trigger an economic contraction. The economy is expected to shrink by 0.1% to 1% if the policies persist for the rest of 2023.
“Saudi cuts can be costly,” said Jean-Michel Lilina, Middle East and North Africa economist at Bank of America Corp., quoted from Bloomberg, Sunday (9/7/2023).
A drop in that level would make Saudi Arabia the worst performing economy in the G20 after Argentina.
The reason is that Saudi Arabia’s economy is backed by the existence of oil fields which are the real lifeblood for the US$1 trillion economy, whose price will jump nearly 9% in 2022. That helps Crown Prince Mohammed bin Salman invest tens of billions of dollars in everything from sports to tourism and new cities.
Some analysts are optimistic that Saudi Arabia’s economy can grow even if cuts persist into 2024. Amy McAlister of Oxford Economics sees GDP rising 0.3% in that scenario.
The government says Saudi Arabia’s non-oil economy is likely to grow 5.8% this year. Private companies outside the oil industry are said to have increased at the fastest rate recorded in June 2023.
“The transformation and diversification of the Saudi economy under Vision 2030 is focused on non-oil GDP,” said a spokesperson for the Saudi Ministry of Finance.
Even so, the decline in the petrodollar has pushed Saudi Arabia’s budget into deficit and forced it to take on more debt. Some of these signals are marked by the government selling Eurobonds worth US$ 16 billion so far this year.
(aid/rrd)
2023-07-09 14:02:29
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