In 2014, Saudi Arabia had a positive trade balance of $159 billion dollars. Less than two years later, the kingdom is considering issuing IOU’s to vendors due to its $98 billion dollar 2015 trade deficit.
In a report titled World Oil Outlook 2015, OPEC suggests that the new “oil price environment” (which began in the second half of 2014) created an unexpected challenge to the energy and oil sectors.
Saudi Arabia’s challenge may be greater than most, as its oil and gas exports account for approximately 85% of its earnings from exports.
The country’s top export destinations are China ($44.2 billion), Japan ($42.5 billion) and the United States ($41.8 billion), but in a 2016 report the IMF noted the United State’s “reducing its net imports of crude oil and related liquids by almost 50 percent” has impacted Saudi Arabia’s financial outlook.
As world economies begin to address the effects of oil and gas production to climate through policy initiatives, and, as trends in investment in the renewable energy sector continue to rise, Saudi Arabia is being forced to face the elephant in its oil fields.
During the first two weeks of May, 2016, Saudi Arabia presented its Vision 2030 plan to the IMF. Reforms include raising taxes, government cuts, increasing the role of the private sector in the economy, a sale of government assets, and, the development of a domestic defense industry.
Following the meetings, Tim Cullen, the IMF’s mission chief to Saudi Arabia released a statement suggesting that “gradual”, “sizeable” and “sustained” fiscal adjustments need to occur “with the aim of achieving a balanced budget over the medium-term.”
Chart: Saudi Arabia Balance of Trade, 2001 – 2016, Source: tradingeconomics.com