Saudi Arabia will tap up international creditors to plug gaps in its public finances left by low oil prices, according to a report in the Financial Times.
The country’s debt could rocket to as much as 50% of GDP by 2020, from 6.7% this year, the report said.
It’s not great timing.
The country’s sovereign credit ratings were cut to “A+/A-1” from “AA-/A-1+” by the credit-rating company Standard and Poor’s earlier this month.
In a release, S&P said a “pronounced negative swing” in Saudi Arabia’s fiscal balance prompted the downgrade.
Over the 10 years that ended in 2013, S&P noted that Saudi Arabia’s budget surpluses — or money available after all government expenses had been met — averaged about 13% of gross domestic product. This situation, however, has changed rapidly as the price of oil has crashed, and in 2015 Saudi Arabia is expected to see a budget deficit equal to 16% of GDP.
The country has been hit by low oil prices. The OPEC oil-producing cartel, of which Saudi Arabia is a key member, decided against cutting production targets last year, letting the price fall from around $US100 to less than $US50.
The policy is aimed at forcing weaker, less efficient oil-producers out of the market by slashing their profit margins.
Khalid al-Falih, the chairman of Saudi Aramco, the state’s oil company, told the Financial Times: “We knew that it was going to be painful but the extent of the pain went beyond our expectations.”
Here’s the Brent crude oil price, a benchmark for oil, over the past two years:
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