Regional Economic Outlook for Saudi Arabia
Saudi Arabia is one of the states in the Middle East that has been experiencing a stagnating economic growth as a result of low oil prices, conflicts and global economic slowdown. Declining oil prices has seen the country suffer inflation, high rates of unemployment, and has also weakened external and fiscal balances of oil exporters (Baumeister & Kilian, 2015). Lower oil prices have also created a decline in foreign demand and consequently resulting in financial instability. A decrease in reserves has seen the country’s GDP decline as shown by the falling industrial production.
A reduction in country’s economy has weakened foreign investor confidence and thus reduces foreign direct investment http://www.imf.org/external/pubs/ft/reo/2015/mcd/eng/mreo0515.htm. Saudi’s financial crisis is attributed to limited economic diversification and dependence on international oil prices. The primary consideration for Saudi Arabia is to embark a sizeable fiscal adjustment to create financial budget deficits and to diversify away from oil by investing in human resource development and infrastructure (Al-Torkistani, Salisu & Maimany, 2015). Adjustment of tax policies will depend on the availability of buffers and fiscal space. This will help the limit government spending and support a diversified private sector.
The international banking community seeks to adjust exchange rates to a flexibility to help oil exporters adjust to lower oil prices and, therefore, improve the business climate and governance. The common risk noted in Saudi Arabia is political risk brought about by geopolitical threats and conflicts that have disrupted regional trade. Political conflicts have led to human catastrophe, destruction of infrastructure and mass displacement of people (Baumeister & Kilian, 2015, p.16). Geopolitical tensions have also increased disruption in global trade, financial transactions and commodity markets.
Highly volatile financial markets have exposed the country to financial risks that pose Saudi to financial stability challenges and reversal to capital flows. Investors are not investing in Saudi Arabia for fear of losing their portfolio due to financial instability.
References
Al-Torkistani, H. M., Salisu, M. A., & Maimany, K. A. (2015). Modeling a Sustainable Saudi Arabian economy: the real issues. International Journal of Sustainable Development & World Ecology, 1-8.
Baumeister, C., & Kilian, L. (2015). Understanding the Decline in the Price of Oil since June …
