Author of The Black Swan Nassim Nicholas Taleb, who foresaw the 2008 financial crash, said “Saudi Arabia is going to go bankrupt” in response to Saudi Arabia releasing its 2019 budget this week, which at 1.106 trillion riyals, or USD $295 billion, is the largest in the kingdom's on record. "We are determined to go ahead with economic reform, achieving fiscal discipline, improving transparency and empowering private sector," Saudi King Salman said.
For Saudi Arabia to be able to meet its projected revenue and fund these generous payments it will need oil prices to rise much higher. Saudi Arabia is not projected to close its deficit as the kingdom forecasts a sixth consecutive budget deficit in a row, estimated to hit USD $35 billion in 2019. The 2019 budget represents a 7 percent increase from 1.030 trillion in 2018.
Concerning details of the budget include a revenue forecast of 975 billion riyals, while total spending will rise 7 percent to 1.106 trillion riyals. The budget deficit will be 4.2 percent of the GDP, which is expected to grow from 2.3 percent in 2018 to 2.6 percent in 2019. To put this in perspective, this is nearly double the size of Italy's projected deficit though still quite smaller than the deficit of the United States (U.S.).
The Saudi government expects non-oil revenue to increase from 287 billion riyals in 2018 to 313 billion in 2019. According to the budget, Saudi Arabia expects oil revenues to grow nearly 10 percent from 607 billion riyals in 2018 to 662 billion in 2019. To hit 662 billion riyals in oil revenue, or USD $177 billion, up from USD $162 billion in 2018, Saudi Arabia expects near record oil output of 10.2 mmb/d sold at a price of USD $80/barrel, while Saudi Aramco won’t increase its allocations to the government.
As oil fell below the USD $50 mark this week, the price of oil would need to rise at least 40 percent for the Saudi budget revenue assumption to be hit. Brent would have to rise an additional USD $15 to $95 a barrel for the kingdom to balance its budget deficit, according to Bloomberg chief Middle East economist Ziad Daoud.
Last year, Saudi Arabia based its 2018 budget on crude averaging USD $63 a barrel, $17 below the latest forecast even as its OPEC-defecting neighbor, Qatar, assumed $55 per barrel in its budget forecast released last week. This is the latest sign that the Saudi kingdom expects its efforts to corral OPEC members and its allies to cut production next year to support the assumed prices. In the face of more Qatar-style defections, Saudi Arabia will take on much more debt and putting it at the mercy of global creditors.
If Saudi Arabia's traditional bankers decide to boycott the Kingdom, preventing it from gaining access to global capital markets, Mr. Taleb's assessment may prove accurate.