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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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Wed, 10/21/2015 - 17:22 | 6695953 falga
falga's picture

Who will be broke?  The Royals or Saudi?   My prediction is that it will be Saudi while the Royals will continue to enjoy the Royal treatment while they impose austerity measures on the population of Saudi Arabia.  This is actually good.  Perhaps the beginning of the end of Wahabism.

Wed, 10/21/2015 - 17:24 | 6695968 Subliminal messenger
Subliminal messenger's picture

You better bomb them just to make sure.

Thu, 10/22/2015 - 06:54 | 6696018 Raul44
Raul44's picture

Dear Saudies, I sincerely wish you all the worst, with regards, Raul.

Wed, 10/21/2015 - 17:47 | 6696042 Son of Captain Nemo
Son of Captain Nemo's picture

Nope.

News flash... Saudi Arabia was bankrupt at least 5 years ago more like 10 when Russia popped into "1st place" about that time!...

And here is why "Trident Juncture" will turn into WW III!  Can't allow the BRICS to take over now can "we"?!!!

Sure hope the "we" in uniform are up to the task after where they've been for the past two decades!!!

Good luck with "curls" boyz and girlz!... I meant of course the weight lifting kind not the hair wearing kind!!!

Wed, 10/21/2015 - 17:52 | 6696078 Allen_H
Allen_H's picture

We can only hope ! Fuck you Saudi Arabian chimpanzees. 

Wed, 10/21/2015 - 17:53 | 6696084 Joebloinvestor
Wed, 10/21/2015 - 18:15 | 6696169 El Vaquero
El Vaquero's picture

Holy shit!  That got me to do a quick search, and that's not just limited to Saudi Arabia:

 

...

Statistical research on Arabic countries shows that up to 34 percent of all marriages in Algiers are consanguine (blood related), 46 percent in Bahrain, 33 percent in Egypt, 80 percent in Nubia (southern area in Egypt), 60 percent in Iraq, 64 percent in Jordan, 64 percent in Kuwait, 42 percent in Lebanon, 48 percent in Libya, 47 percent in Mauritania, 54 percent in Qatar, 67 percent in Saudi Arabia, 63 percent in Sudan, 40 percent in Syria, 39 percent in Tunisia, 54 percent in the United Arabic Emirates and 45 percent in Yemen (Reproductive Health Journal, 2009 Consanguinity and reproductive health among Arabs.).

...

http://en.europenews.dk/-Muslim-Inbreeding-Impacts-on-intelligence-sanit...

 

 

Wed, 10/21/2015 - 18:32 | 6696250 Joebloinvestor
Joebloinvestor's picture

Now you have a good idea of why they have so many nuts running around.

The UK would stick their nuts in some asylum, the Arabs give them a mosque.

Wed, 10/21/2015 - 18:40 | 6696278 El Vaquero
El Vaquero's picture

Yeah, no shit!  Doing some more reading on that, if a girl wants to get married to somebody outside of the family, the bridegroom has to get permission from her cousin. 

Wed, 10/21/2015 - 18:46 | 6696294 Joebloinvestor
Joebloinvestor's picture

I firmly believe they have permanently screwed up their gene pool.

Wed, 10/21/2015 - 19:12 | 6696402 El Vaquero
El Vaquero's picture

1400 years of that shit?  Yeah, I think it's safe to call them retardo inbred screwhead fucks.  And if marrying one's first cousin isn't bad enough, some of them marry their nieces.

Wed, 10/21/2015 - 19:29 | 6696442 Joebloinvestor
Joebloinvestor's picture

The Middle East will never be fixed.

Wed, 10/21/2015 - 19:33 | 6696457 El Vaquero
El Vaquero's picture

That I already knew.  They can't run out of oil fast enough for my tastes. We'll finally be willing to leave that place alone.  If they keep on with those practices, when the ME runs out of oil, their genepool will only get more damaged, because there's a lot of sand that doesn't do too well when it comes to growing food.  What happens when an already damaged gene pool shrinks? 

 

The crazy over there makes a lot more sense now. 

Wed, 10/21/2015 - 19:51 | 6696489 Joebloinvestor
Joebloinvestor's picture

The best example is the crazy stuff that is documented in the UK on the repercussions from inbreeding.

The brain gets fucked up from it.

Genetic referrals of Middle Eastern origin in a western city: inbreeding and disease profile.

http://www.gfmer.ch/Medical_genetics_education_research/pdf/Consanguineous_marriages_Hamamy_2009.pdf

 

Wed, 10/21/2015 - 23:06 | 6697092 Rock On Roger
Rock On Roger's picture

My heir comes from my seed in my half sister from a different mother. Not my first born but my first born by my half sister.

Wed, 10/21/2015 - 23:08 | 6697103 Rock On Roger
Rock On Roger's picture

over and over, again and again.

 

One hundred generations worth.

Kinda gets fucked up after a while.

Wed, 10/21/2015 - 18:53 | 6696315 Jstanley011
Jstanley011's picture

No, the UK would allow them to immigrate wholesale.

Wed, 10/21/2015 - 21:45 | 6696901 silverer
silverer's picture

What about Kentucky and Mississippi?

Thu, 10/22/2015 - 05:30 | 6697461 prymythirdeye
prymythirdeye's picture

Or the Rothschilds and all the other "elite" families.

Wed, 10/21/2015 - 18:53 | 6696314 Whoa Dammit
Whoa Dammit's picture

If similar birth defects are common throughout the Arab states due to inbreeding, that will put an end to health care as the Europeans know it once the migrants become entrenched.

Women have an average of six children and  in some regions more than half of the marriages are between close relatives.

Asjan was born with spinal muscular atrophy, a crippling and usually fatal disease that was carried in the genes of both parents. Their fourth, sixth and seventh children were also born with the disorder.

Ashjan would never be able to comb her hair or dress or clean herself. Her body would grow only in tiny spurts, her spine curving into the shape of a half-moon. Once she reached adolescence, she would shrivel year by year, and she would most likely die by the time she turned 20.

Wed, 10/21/2015 - 19:15 | 6696406 El Vaquero
El Vaquero's picture

And the school system.  The article above states that, on average, children born to related parents have a IQs that are 10-16 points lower than children born to unrelated parents.  Hello special ed!

Wed, 10/21/2015 - 18:09 | 6696154 TheSheepWolf
TheSheepWolf's picture

Oh finally some good news.

Wed, 10/21/2015 - 18:18 | 6696187 SmittyinLA
SmittyinLA's picture

Imagine what would happen to oil prices if the United States booted 25,000,000 illegal aliens and another 10 million legal aliens. 

Would US oil imports drop and US wages rise? 

Would the zionists leveraged landlords in solar debt be totally fucked? 

Will Trump take the hit or get hit? 

Will Americans vote to fuck or get fucked? 

Wed, 10/21/2015 - 18:49 | 6696306 .300WinMag
.300WinMag's picture

My grandfather rode a camel, I drive a Rolls Royce, my grandson will ride a camel............

Wed, 10/21/2015 - 18:58 | 6696345 Jstanley011
Jstanley011's picture

There's plenty of ghost towns in the U.S.'s mountain west, which once boasted opera houses and world-class hotels, that show exactly what happens to commodity-based economies.

Wed, 10/21/2015 - 23:38 | 6697174 cheech_wizard
cheech_wizard's picture

Just keep this in the back of your head...

If you can't grow it, you've got to mine it.

Wed, 10/21/2015 - 21:40 | 6696886 silverer
silverer's picture

And his name won't be Steve Martin, either. 

Wed, 10/21/2015 - 18:56 | 6696329 HoserF16
HoserF16's picture

GOOD! I fucking hate the Saudi's. Most of the "So Called" Hijackers were Saudi's. Assuming of course you believe the 911 fairytale...

Wed, 10/21/2015 - 19:32 | 6696456 Jug Jugette
Jug Jugette's picture

Couldn't happen to nicer people.

Wed, 10/21/2015 - 20:49 | 6696730 smacker
smacker's picture

"Saudi Arabia Will Be Broke In 5 Years [...]"

Hell, will it really take that long...

Wed, 10/21/2015 - 23:20 | 6697137 A Dollar Short
A Dollar Short's picture

Back to fucking goats instead of crashing Bugatti's...

BAAAAAAAH!

Thu, 10/22/2015 - 09:29 | 6697994 smacker
smacker's picture

Or as my brother once said when he worked in Saudi for a while and commented on their lack of driving skills:

    "they've gone from camels to Cadillacs in 10 years".

 

It will back to camels when they're broke...

Wed, 10/21/2015 - 23:28 | 6697154 hedgiex
hedgiex's picture

You should be benefitting from this forecast by betting on Iran. Volatility is Opportunity. This goes with the displacement of a Oil Power Center with many wannabees. Inevitable as the global economy goes thru the spasms in excreting debts.

Wed, 10/21/2015 - 23:41 | 6697178 cheech_wizard
cheech_wizard's picture

The wife called... gas price at the local station - $1.68/gallon

Then came across this for Canada...

http://www.niagarafallsreview.ca/2015/10/21/st-catharines-gas-cheapest-i...

“St. Catharines is the cheapest place to buy fuel for motorists in all of Canada,” gas expert Dan McTeague said Wednesday afternoon, when the price at four local Esso stations sat at 75.8 cents per litre. Nearby Pioneer and 7-Eleven stations offered gas for 79.6 cents per litre.

Standard Disclaimer: Personally I'm rooting for a $1/gallon.

 

Thu, 10/22/2015 - 13:20 | 6699120 Captive_Okie
Captive_Okie's picture

If gasoline gets to $1.00/gal you better have your 'prepper' supplies layed in because there will have been, or shortly will be, a serious economic collapse.

Thu, 10/22/2015 - 00:30 | 6697261 King Rear
King Rear's picture

With Putin having won some serious regional favors, who bets he uses some locals to stage a coup/bombing/assasination in SA, setting stage for eventual invasion, at least driving oil prices back up. Is this too obvious?

Thu, 10/22/2015 - 01:11 | 6697305 dogismycopilot
dogismycopilot's picture

KSA will never run out of money. Not with access to the Bond Markets. 

The only thing that will destroy KSA is if ISIS is driven out of Iraq and into KSA.

Now that would be interesting.

Otherwise, they can go on for another 100 years.

Thu, 10/22/2015 - 07:46 | 6697612 EddieLomax
EddieLomax's picture

They are much more fragile then that.  Their problem is that they have a rapidly growing population, 1/2 the population today is under the age of 18, so a population doubling is baked in, and with Islam there is no hope of any one child policies coming to their rescue, although any such policy would likely be too late already.

They need ever increasing amounts of money just to hold things together, because you can bet that otherwise they will have a very fertile enviroment for people offering an alternative government due to a deeply frustrated population, it doesn't matter if their promises are unrealistic, they will sound better then the certain grim existence on offer and things will go to hell in a handbasket.

Couple that with the increasing difficulty of maintaining oil extraction rates, difficulty that is very real due to the evidence we see, that of increasing investment needed, and I dont' see them hanging on for long at this rate, definitely less then 100 years, probably less than 30. 

Thu, 10/22/2015 - 01:41 | 6697324 The Last Bubble
The Last Bubble's picture

Yeah, yeah Tyler, 

The Saudis are going bankrupt, like Japan is supposed to since 1994 (I'm still selling puts on the JGB's and Swaptions to your hero Kyle Bass, if you want some...)

Ebola is about to swamp the US.

And Chinese SEO's are going broke last year.

Let's all be scared.

Thu, 10/22/2015 - 06:43 | 6697501 TheSheepWolf
TheSheepWolf's picture

Well.... ZH is a gloom & doom site so what do you expect....

 

Sometimes I am wondering who is behind this site and whats the purpose. 

Thu, 10/22/2015 - 01:48 | 6697333 salman
salman's picture

"Saudi Arabia Will Be Broke In 5 Years, IMF Predicts"

 

....and the world, specially USA, Europe, BRICS, EAST & AustalAsia will still be enjoying the fruits of their broken printers...

...and how many times IMF been correct in its predictions since its inception.

Thu, 10/22/2015 - 02:54 | 6697387 Panic Mode
Panic Mode's picture

I think it is more accurate to predict with the number of beheaded per month.

Thu, 10/22/2015 - 03:13 | 6697390 wizteknet
wizteknet's picture

omg -10

Thu, 10/22/2015 - 04:36 | 6697428 bunnyswanson
bunnyswanson's picture

What's your point, wiz?  Goal may be a better word.  Fatiguing the visual perception of the reader by reptitive drivel is my guess.

They take you in and then spit you out, you know.

https://www.youtube.com/watch?v=bpz2AWu4PZg

Thu, 10/22/2015 - 03:36 | 6697403 wizteknet
wizteknet's picture

down in it

Thu, 10/22/2015 - 07:37 | 6697583 EddieLomax
EddieLomax's picture

You just have to stand back and admire the beauty of the situation here for a moment.

We have Saudi Arabia, apart from a sideline in herding 7th century wannabe's around some tents and a rock for one week a year they just have oil to sell, but somehow they have become locked into a system where they are intent on surpressing the price of the oil (whether to preserve market share, damage russia, damage Iran, or whatever), despite the fact that oil is finite, and they have been spending every increasing amounts of cash trying to maintain extraction rates.

Complete insanity, but in a country where 1/2 the population is under the age of 18 there shall be no happy endings.

Thu, 10/22/2015 - 07:50 | 6697629 Last of the Mid...
Last of the Middle Class's picture

If the saudi's go broke, I'm hunkering down waiting for the next false flag event in the US. Diversion, diversion, diversion.

Thu, 10/22/2015 - 13:15 | 6699091 yipcarl1
yipcarl1's picture

Yeah and it would have been 2005 if they didn't help orquestrate 911 and extend their lives.  They can all drop dead. 

Fri, 10/23/2015 - 01:11 | 6701670 onmail1
onmail1's picture

It cant go broke

if it cant exist 

anymoar!!!

 

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