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Thursday, October 8, 2015

Saudi Arabia Cutting Back on Spending Amid Low Oil Prices

From Bloomberg:
Saudi Arabia is ordering a series of cost-cutting measures as the slide in oil prices weighs on the kingdom’s budget, according to two people with knowledge of the matter. 
The finance ministry told government departments not to contract any new projects and to freeze appointments and promotions in the fourth quarter, the people said, asking not to be identified because the information isn’t public. It also banned the buying of vehicles or furniture, or agreeing any new property rentals and told officials to speed up the collection of revenue, they said. 
With oil accounting for about 90 percent of revenue in the Arab world’s largest economy, a drop of more than 40 percent in crude prices in the past 12 months has combined with wars in Yemen and Syria to pressure Saudi Arabia’s finances. While public debt is among the world’s lowest, with a gross debt-to-GDP ratio of less than 2 percent in 2014, that may rise to 33 percent in 2020, according to estimates from the International Monetary Fund.

“In order to demonstrate a bit of fiscal discipline the government needed to take some measures in 4Q to moderate spending,” John Sfakianakis, a Riyadh-based Middle East director at Ashmore Group Plc, said by phone. “Going forward Saudi Arabia will have to implement spending cuts and efficiencies in order to avoid a runaway fiscal deficit in 2016.”
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