Saudi Arabia Will Be Broke In 5 Years, IMF Predicts

Tyler Durden's picture

As crazy as it sounds, the Saudis are going broke.

Of course you wouldn’t know it if you read the account of King Salman’s latest visit to Washington which included booking the entire DC Four Seasons and procuring a veritable fleet of Mercedes S-Class sedans.

You’d also be inclined to think that everything is fine if you simply looked at SAMA holdings (i.e. FX reserves) which still total nearly $700 billion. 

The problem however, is the outlook. 

Fighting wars costs money and so does bribing the citizenry to ensure you don’t get some kind of Arab Spring-type uprising. When you endeavor to artificially suppress the price of the export that is the source for your wealth and international prestige (all in an epic attempt to bankrupt the competition and secure geopolitical “ancillary benefits”) you don’t do yourself any favors from a financial perspective and now, the Saudis are staring down a massive budget deficit and a current account that’s in the red for the first time in ages.

So while things may look on the up and up from an FX reserve perspective (even as the cushion is at its lowest level since 2013) and while the kingdom has plenty of capacity to borrow with a debt-to-GDP ratio of just a little over 2%, things are about to get ugly very quickly going forward and if Riyadh decides to plunge headlong into Syria’s civil war, it will only get worse. Note that while debt levels are likely to stay low relative to a world where countries like Japan are borrowing so much that the number of decimal places won't even fit into a title, going from basically 0% to ~16% of GDP in the space of just 24 months isn't exactly a good sign:

The situation is in fact so dire that the Saudis have begun delaying payments to contractors in an effort to preserve cash. 

On Wednesday, the IMF is out with a new report on the economic outlook for the Mid-East and the picture for the Saudis is not pretty. In short, Riyadh will burn through its cushion in less than 5 years under current conditions. Here’s more: 

Sharply lower oil prices have significantly affected the fiscal prospects of oil exporters across MENA and the CCA.1 The Brent oil price is projected to average $53 a barrel in 2015, down from almost $110 a barrel in the first half of last year. Exporters’ fiscal balances have turned from sizable surpluses to large deficits, with MENA and CCA export revenues dropping by $360 billion and $45 billion, respectively, this year alone.

 

 

For oil exporters, the main policy issue is fiscal adjustment and rebuilding buffers over the medium term. The Brent oil price is projected to recover only modestly to about $66 a barrel by the end of the decade, with MENA and CCA export receipts remaining $345 billion and $30 billion, respectively, below the 2014 level, even in 2020. In the absence of adjustment, fiscal balances will remain in deep deficit in most countries, with public debt ratios rising rapidly (red lines in Figure 4.2). 

 

 

Even under the IMF baseline scenario, however, public debt ratios will continue to rise in many GCC and CCA exporters (blue lines in Figure 4.2). In a number of countries, mediumterm fiscal balances will fall well short of the levels needed to ensure that an adequate portion of the income from exhaustible oil and gas reserves is saved for future generations (Figure 4.3). Bahrain, Oman, and Saudi Arabia have medium-term fiscal gaps of some 15–25 percentage points of non-oil GDP, while conflict-torn Libya has a gap of more than 50 percent of non-oil GDP. 

 

The large and sustained drop in oil prices has increased fiscal vulnerabilities in MENA and CCA oil-exporting countries. The issue of fiscal space has become critical as oil exporters decide how quickly to adjust their fiscal policies to the new reality of persistently lower oil prices. This box considers several alternative measures of fiscal space. A good starting point is the size of governments’ financial assets—commonly referred to as “fiscal buffers.” In general, countries with larger buffers can afford to maintain fiscal deficits further into the future, so as to reduce the impact of lower oil prices on growth. On current trends, however, all non-GCC MENA oil exporters are already projected to run out of liquid financial assets in the next three years (see Chapter 1). In, contrast, CCA oil exporters have at least 15 years’ worth of available financial savings,1 while GCC countries are split evenly between countries with relatively large buffers (Kuwait, Qatar, and the United Arab Emirates—more than 20 years remaining) and countries with relatively smaller buffers (Bahrain, Oman, and Saudi Arabia—less than five years).

As a refresher, here's BofAML's sensitivity analysis which shows how long Riyadh's SAMA reserves will last under various scenarios for crude prices and debt issuance:

One important takeaway from the above is that if the Saudis were to burn through their reserves it would represent a nearly $700 billion global liquidity drain as Riyadh dumps its USD-denominated assets. That would amount to a complete reversal of the petrodollar virtuous circle that's underwritten decades of dollar dominance and which has served to underpin the global economic order for as far back as most market participants can remember. 

And while it's by no means a foregone conclusion that oil prices will remain "lower for longer" as the Saudis are to a certain extent the masters of their own destiny in that regard, one thing worth noting is that not only is Iranian supply set to come back online, but Tehran seems determined to supplant Riyadh as regional power broker. Both of those eventualities will have very real consequences for crude prices and thus for the future of The House of Saud.

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Berspankme's picture

back to camel fucking

Looney's picture

IMF’s forecasts are as good as Dennis Gartman’s.

Speaking of the devil… ;-)

It looks like our new Chairman of the Joint Chiefs of Staff, General Dunford, is a disciple of Dennis Gartman.

Just yesterday, he said: “Iraq is not planning to turn to Russia for airstrikes and other military assistance in its fight against Islamic State militants”.

And today, according to FarsNews:

Iraq Moves to Exclude US from Anti-ISIL Campaign

Wed Oct 21, 2015 TEHRAN (FNA)- Deputy Secretary General of Iraq's Badr Organization Abdolkarim al-Ansari blasted the US-led Anti-ISIL Coalition's poor performance in fighting the Takfiri terrorists, and said his country does no more want Washington's help in the war against the militant group.

I suspect that both, Syria and Iraq, had requested Russia’s assistance IN WRITING before the first Russian plane landed in Latakia. Iraq’s request hasn’t been announced yet. I think? ;-)

Looney

http://english.farsnews.com/newstext.aspx?nn=13940729001252

El Vaquero's picture

What I'm getting out of this is that SA either isn't going to go broke at all, or they have 6-12 months. 

CheapBastard's picture

Wait for "BOGO Camel" sales on FleaBay. You'll get some real bargains there.

 

Be sure to to ask for one that's not been too abused. Some of those "preowned" camels are pretty worn out.

 

Ohyeah, make sure that clearly state, "Free Shipping."

wee-weed up's picture

 

 

The Saudis look at how long the US has been "operating" in the red and say...

"We're doing just fine."

Occident Mortal's picture

Saudi's can't print USD.

 

Talk about shooting yourself in the face.

Fahque Imuhnutjahb's picture

No worries, they'll annex Yemen and offset the shortfall.

Never One Roach's picture

"Each camel comes with a FREE box of vaseline!"

 

Now that's a bargain!

balolalo's picture

THIS SOUNDS LIKE A COUNT DOWN TO WW3.   T-MINUS 5 YEARS AND COUNTING.   COUNTING FAST.   

johngaltfla's picture

Nah. No reason to fight over Saudi Arabia now, just let it degenerate back into a tribal nation full of camel rapists like it was before WWI. There is plenty of oil now and they are not needed as manipulators of the financial system any longer.

Not to mention I really would like to get rid of the Islamofacist program of Rent-A-US Bankster and Rent-A-US Politician and try to get some normal, sane, real Americans looking out for our own nation for once.

Save_America1st's picture

the scene is kinda backwards, but...I'm sure you all get the meaning.  Even if the rag-heads won't.  LOL ;-)

Well...Bye!

jeff montanye's picture

i suppose as long as somali foot soldiers are willing to be sent to fight in yemen, the saudis can continue an air war with token ground troops.  if i hadn't been king for a year yet i'd be careful how many body bags i shipped home though.

however saudi pilots flying u.s. planes will have a considerably tougher time in syria, should they be so bold and foolish. sometimes it just comes down to who is really willing to fight, not just offer money.

if iran truly does get the sanctions lifted and starts selling oil in quantity, the current u.s. policy in syria and iraq looks untenable.

next stop an iranian/russian protectorate from the afghanistan border to the med.  

Escrava Isaura's picture

 

 

The pot calling the kettle black


wee-weed up's picture

 

 

"Saudi's can't print USD."

Wanna bet?

leftcoastfool's picture

"Saudi's can't print USD."

They can if Jeb "bin Abdulaziz Al Saud" Bush gets installed into the oval office...

greenskeeper carl's picture

this goes with what I have been saying for a long time - the house of saud will not make it past 2020.

 

Wait, shit, the IMF is always wrong, so I guess Id better re think that hypothesis. This probably means they'll be fine.

jeff montanye's picture

well the imf said broke in five years.  if it were three they'd also be wrong, wouldn't they?

when's the last time the saudis fought a war?  i think their new guy is getting in over his head. 

kings come and go.  so do royal families.  

KnuckleDragger-X's picture

It's more along the lines of not being wiped off the map and with President Zippy and Ketchup-Boy helping things along, their doomed.....

El Vaquero's picture

I wonder if it bothers SA that, if they were to quit exporting oil, we'd probably happily turn a blind eye as Russia shit-stomped the fuck out of them? 

brodix's picture

If they quit exporting oil, the Russians wouldn't have to bother.

insanelysane's picture

The IMF sees every set of data points as a straight line with some fixed slope.  Their modeling systems can't fit data to curves.

El Vaquero's picture

What is this "non-linearity" thing that you speak of?  Unpossible!

Kaervek's picture

"With inflation currently at 0.5%, according to our models we can be confident hyper-inflation won't hit the US ever"

uhland62's picture

They say in the headline "5 years". Whenever, couldn't happen to a nicer people. But they've still got their tourism business. They could figure out a way to extend that tourism business over a longer time than just a week per year, have fewer deaths, and bingo, they don't even need to pump any oil. 

waterwitch's picture

Wait until they have to turn off the A/C!  Talk about deaths!

giggler321's picture

What's the matter with debt?  I mean everyone else is broke already.  Might as well join the party.  The waters cold, come on in...

madcows's picture

yeah, but did you see the teats on that thing!

City_Of_Champyinz's picture

Ever wonder why they force their women to wear a fucking burqa in the middle east?  Nobody wants to look at that shit, and if you do, that drooling camel standing by the tent starts looking pretty damn fine...

greenskeeper carl's picture

sorry, but youre dead wrong on that. I have seen some absolutely beautiful saudi, kuwaiti, and bahraini women.

SuperVinci's picture

Ditto. I've seen countless hot saudi, iraqi, kuwaiti, and bahraini camels.

jeff montanye's picture

and, specifically, the head scarves and cover up clothes are because all the men (supposedly but hey they would know best) really do get so turned on by the sight of these women that the men must be protected from themselves.

there have been incidents on the riviera, but that is a pretty tempting place.

uhland62's picture

When this thought construct was put together, they were living in tents in the Arabian desert. It made perfect sense to cover your hair and face to avoid getting all that sand blown in, given the situation that the tents were not equipped with a hot shower. All religious commandments have a practical reason from the time when they were invented. 

BullyBearish's picture

Something from the OLD TESTAMENT for them:

Job 4:8 

As I have seen, those who plow iniquity and sow trouble reap the same

janus's picture

Lord A. Tennyson once said that the Book of Job is the world's finest piece of literature...ever.  i don't know if i'd go quite that far, but it remains one of my all-time favs.

and so, BullyBearish, please forgive janus for appending instead a quote from said book i think a tad more apropos:

it comes from the scene where satan has come before the Heavenly Host, making his regular visit to accuse and condemn the children of men.  God says to satan, "where have you been?"  satan replies, "roaming to and fro about the face of the earth."  God says, "have you considered my servant Job?"  at this point, they go back and forth and God almost boasts over the righteousness of this, the richest man in the east.  in a pique of contempt, satan shoots back a great line:

"skin for skin; a man will give all that he has to save his life."

and then, God gave satan permission to torment Job, take all that he has and test the fortitude of his faith...with one small rejoiner, "you cannot touch him." (meaning, you must spare his life).

and so it was that job was left bereft of all that he had.  servant after servant came to him saying that his entire estate and all his hard-partying children had been consumed in calamity.  all he had at this point remaining was a nagging wife who encourgaed him to curse God, a body pocked with turgid boils and a few friends who sought to blame him for his misfortune.  

if you'd like to learn more about the story of Job, go check out a book called The Bible.

other than that, it think it's interesting that Job, much like saud, was the richest in the east...and, on balance, when it comes to the flesh-trade, the saud account is far over-due...and their hard-partying children have been raping and drugging and sodomizing their way across the planet.  

and so the question must be posed to the custodians of the shrines,  when it comes to skin for skin, how much of your hide are you willing to spare to save your life?

all this, and we haven't even gotten to the missing 28 pages from the 9-11 report, the soon-coming 'revelation' about obama's past (and his connections to rhyiad), and a host of other sensational accounts detailing various secret accounts used to fund much of the world's mischief and their associated misprisons.

for Job, there was a happy-ending...for saud, i don't see such a rosy finale.

but, saud, i'm sure tel aviv will be a loyal and longstanding supporter in gratitude for all your cooperation...they have a peerless reputation for dependability and honor, after all.

janus

 

Kaervek's picture

As if there was any justice left in this world...

The show will go on and if the royal family is put to the sword the next leader will come along and start the circle of raping and pillaging anew.

Your piece of shit bible was only written to ensnare and enslave the masses, and those in charge of this crime are the closest thing to satan you will ever get.

What a beautiful piece of shit world this is, where fanatics kill each other over the interpretation of a worthless and fraudulent "book" they call holy.

janus's picture

simmer-down, kaervek.  do not for one moment pretend that you understand the nature of my thinking nor the purpose in my citing The Bible.

whether or not that book be True (in the platonic sense), it does have within it a 'truth' that governs this world we both inhabit.  that may not be comfortable for you; and it's not a pleasant thing for me, at times, either.  be that as it may, and whatsoever of it may or may not be 'true', every word of it is going to come to pass...all the tumblers are falling into place, and you are witnessing the 'forging of Fate' -- right before your very eyes.  the inertia of it all seems unstoppable. 

https://www.youtube.com/watch?v=_IIZPURwTK8

after all, is it 'prophesy' or is it 'projection'.  now, this is a disturbing question crippling every instinct as it relates to existentialism...but it's quite a thing to consider.  

the masses, by and large, seek unto slavery -- by instinct.  they like to plate themselves with the veneer of 'independence' and 'freedom'; but most are simply sheep seeking out the shelter of the most accommodating protection...knowing, somewhere in the back of their minds, that due to such submission they'll be their whole life sheared and herded by nasty hounds, and their little ewes will oft be sliced and roasted -- but at least it beats the predations of wolves.   

p.s. people will kill each other for whatever reason is most compelling and expedient.  did the commies kill in the name of this book?  and what of the killing that preceeded books?  

janus

EINSILVERGUY's picture

You sir are a gentleman and a scholar.  I commend your logic and write of verse

jeff montanye's picture

i hope you're right janus. particularly on "the soon-coming 'revelation' about obama's past (and his connections to rhyiad), and a host of other sensational accounts detailing various secret accounts used to fund much of the world's mischief and their associated misprisons."

while we're at it, don't forget

https://www.youtube.com/watch?v=OsoY3AIRUGA

https://www.youtube.com/watch?v=YW6mJOqRDI4

https://www.youtube.com/watch?v=mhROd7Jt3-w

https://www.youtube.com/watch?v=dgM6hjNedE0

https://www.youtube.com/watch?v=Rj_AL4OlmHc&feature=iv&src_vid=rnbMjAN7B...

http://www.luogocomune.net/site/modules/sections/index.php?op=viewarticl...

https://www.youtube.com/watch?v=EVHstSrC1CQ

https://www.youtube.com/watch?v=gORu-68SHpE

BullyBearish's picture

Very nice Janus...thank you

centerline's picture

Always enjoy reading your posts Janus.  Glad your still posting from time to time.

janus's picture

thanks, Centerline...same here.

shame is, i'm very much in the 'starving' phase of my starving-artist phase.  

been working too much.

 

cheech_wizard's picture

My plan B actually made some money last weekend. Finally got some customers who wanted some logs turned into lumber. Since I'm working out of state, had the stepson do some Saturday labor at the homestead. Charged $45/hr to run the sawmill for 5 hours. My stepson finally gets it. Offer a service that people are willing to pay you more than minimum wage for, and make some fiat in the process.

His immediate thoughts: That was damn good money for 5 hours worth of work, so over e-mail he and I designed a flyer for him to stick up. He's been running all over the neighboring towns putting them up. He is an ex-Navy corpsman and trained phlebotomist and can't find a job that pays more than $10/hr in the area.

Standard Disclaimer: The underground economy will continue to grow.

 

Seer's picture

It's a MATH problem, pure and simple.

SA is experiencing what becomes of growth.  Perpetual growth on a finite planet isn't possible. DUH!

"Go forth and multiply."  We were doomed to fail math from pretty early on...

janus's picture

Seer, i agree...but it isn't so much math that dooms us, it's biology.  all that lives ends in death.  and whether that be from old age, disease, warfare, or CO2 poisoning, over-crowding...the result is the same.

the world will keep on spinning, and we won't be here to see most of it (and we've already missed a lot).

a greater doom, i believe, lies in the attempt to manage the expansion of mankind by sliderules and spreadsheets...for my part, an obsession with infinite abstractions in the minds of finite beings should lead to an overwhelming question, which is always present -- in our struggle to overcome death, we inevitably prove its grim constrictions.  the fate of an individual life we know; but is life itself eternal?  and what of consciousness and sentience?  and can the concept of infinity even be a concept without a consciousness to grasp it?  so if consciousness disappears, does infinity go along with it?  

i'm sorry, i still say to my sons -- go forth and multiply...damn the torpedoes...do not worry about tomorrow, the day's trouble is sufficient of itself...the gift of life is a miracle, and we are blessed to have it -- no matter in what share.  most importantly, may the best man win.  like the spark of Divinity and darwinism all rolled into one; not pitted against itself, but working in synthesis.  

the only option, my friend, is to turn the world over to those who breed in squalor and have no interest in the nobility of mankind.

planet earth does not need any help in stabilizing its population...it's been doing a damn fine job of it for eons and eons.

janus

DaveyJones's picture

reminds me of that george carlin line