Peak Oil is You
Donate Bitcoins ;-) or Paypal :-)
Page added on December 18, 2018
“Saudi Arabia Is Going Bankrupt” Taleb Exclaims After Seeing Kingdom’s Latest Budget
In all the noise surrounding the latest market moves, political news and frenzy over tomorrow’s Fed rate hike (or pause), an important development was missed by many when Saudi Arabia released its budget for 2019 earlier on Tuesday, which at 1.106 trillion riyals, or $295 billion – the largest in the kingdom’s on record – represents a 7% increase from 1.030 trillion in 2018.
During the unveiling of the budget, Saudi King Salman said his country will continue paying public sector cost-of-living allowances for citizens and will boost spending to stimulate growth even as Saudi Arabia toils to close its deficit, which it won’t do yet again as the kingdom forecasts a 6th consecutive budget deficit in a row, estimated to hit $35 billion in 2019.
“We are determined to go ahead with economic reform, achieving fiscal discipline, improving transparency and empowering private sector,” the King said.
While state-funded Saudi “generosity” to keep its citizens happy – and not, say, thinking radical, revolutionary thoughts – is well known, analysts believe the continued cost-of-living allowances, first established in January 2018 and estimated by officials to cost more than $13 billion, are intended to stimulate sluggish growth but mostly shore up support for the royal family and Crown Prince Mohammed bin Salman after a controversy-ridden few months.
The royal allowances of 1,000 riyals a month ($266) are paid to civil servants and military personnel, and other allowances will continue for pensioners and those living on social security. Riyadh will also increase student benefits by 10 percent for the next fiscal year, the king announced.
There is just one problem: for Saudi Arabia to be able to meet its projected revenue and fund these generous payments it will need oil prices to rise higher. Much higher.
Looking at the details of the budget, a few troubling details emerge: revenue is forecast to hit 975 billion riyals while total spending will rise 7% to 1.106 trillion riyals, resulting in a 131 budget deficit, or 4.2% of GDP (nearly double the size of Italy’s projected deficit, if still quite smaller than the US deficit) as GDP is expected to grow from 2.3% in 2018 to 2.6% in 2019.
And while the government expects non-oil revenue to increase from 287 billion riyals in 2018 to 313 billion in 2019, the big question mark is what happens with oil revenue. According to the budget, Saudi Arabia expects oil revenues to grow nearly 10% from 607 billion riyals in 2018 to 662 billion in 2019, it is the assumptions embedded in this revenue forecast that are, well, concerning.
To hit 662 billion riyals in oil revenue, or $177 billion, up from $162 billion in 2018, Saudi Arabia expects near record oil output of 10.2 mmb/d sold at a price of $80/barrel, while Saudi Aramco won’t increase its allocations to the government. For reference, Brent settled just above $56 today, which means that oil has to rise at least 40% for the Saudi budget revenue assumption to be hit. Brent would have to rise an additional $15 to $95 a barrel for the kingdom to balance its budget deficit according to Bloomberg chief Middle East economist Ziad Daoud.
As a reference, analysts expect Brent in 2019 to trade around $73 a barrel, a number which may be rather aggressive considering the recent plunge in the commodity, largely the result of continued excess output coupled with declining demand from China and other key markets.
Even with these aggressive assumptions, which see Saudi Arabia oil revenue rising to a five-year high, the Kingdom will still post its sixth-straight budget deficit.
Last year, Saudi Arabia based its 2018 budget on crude averaging $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.
So what happens if oil refuses to levitate to the desired price? As Bloomberg’s Javier Blas notes, “Saudi Arabia will need to take on further debt, spend its petro-dollar reserves or, at some point, introduce again austerity (as it was forced to do in 2015-2016).”
If #oil prices don’t go higher and/or production rises, #SaudiArabia will need to take on further debt, spend its petro-dollar reserves or, at some point, introduce again austerity (as it was forced to do in 2015-2016) #OOTT
— Javier Blas (@JavierBlas) December 18, 2018
It goes without saying that Saudi Arabia’s bullish call is the latest sign that the kingdom expects its efforts to corral OPEC members and its allies to cut production next year will support prices. On the other hand, any more Qatar-style defections, and the Saudi budget will not only be busted, but Saudi Arabia will end up taking on a lot more debt, which means it will be at the mercy of global creditors.
And while one can see an optimistic scenario in which everything goes as Saudi Arabia has planned, Nassim Taleb is not so sure, with a rather simple assessment: “Saudi Arabia is going to go bankrupt.”
Saudi Arabia is going to go bankrupt. https://t.co/g3B0DwnHyM
— Nassim Nicholas Taleb (@nntaleb) December 18, 2018
Perhaps not just yet: according to the budget, public debt is expected to rise to 678 billion riyals or 21.7% of GDP, hardly an insurmountable number although, as noted above, it’s not the stock but the flow, and Taleb may well be right if Saudi Arabia’s traditional bankers decide to boycott the Kingdom, preventing it from gaining access to global capital markets, Taleb’s dour assessment may well be right.
64 Comments on "“Saudi Arabia Is Going Bankrupt” Taleb Exclaims After Seeing Kingdom’s Latest Budget"
makati1 on Wed, 19th Dec 2018 6:45 pm
Davy, I don’t read at least 90% of the posts here so it is no problem for me. I would post my comments even if Anon and JuanP were not here.
You don’t seem to understand that I am not here for friends. I am here to post negatives about the empire until it folds. I have plenty of physical friends and family in my real world.
My life does NOT revolve around the internet. It is a convenience that I know will end soon when the SHTF. Convenience, not a necessity, unlike some here.
makati1 on Wed, 19th Dec 2018 6:49 pm
BTW: I see the FED bumped the interest rates up again. No surprise. The ‘Great Leveling’ is well under way and the Fed’s job is to make it as bad as possible for the debt serfs. I hope they keep going until it hits at least 4% and they dump another trillion in treasuries. DOW 10,000 in the future? Maybe lower. We shall see.
Admin on Wed, 19th Dec 2018 7:00 pm
“If I promise to behave myself and stop being such a dick, would you guys consider not attacking me back anymore?”
You should have thought about that years ago Davy. You could try apologizing to everyone, but it looks like it’s even too late for that now.
Davy on Wed, 19th Dec 2018 7:18 pm
“Davy, I don’t read at least 90% of the posts here so it is no problem for me.”
Like I care I don’t post on your behalf. You are a senile old man lost in an agenda of hate
“You don’t seem to understand that I am not here for friends.”
BS, billy, you love to have people support you. You are a lonely old man with no life.
“My life does NOT revolve around the internet.”
BS, billy, you don’t have anything else to do but preach your hate and resentment. You life is a big fat zero.
Davy on Wed, 19th Dec 2018 7:19 pm
“BTW: I see the FED bumped the interest rates up again. No surprise. The ‘Great Leveling’ is well under way and the Fed’s job is to make it as bad as possible for the debt serfs.”
LOL, billy does economics
Davy on Wed, 19th Dec 2018 7:23 pm
“You should have thought about that years ago Davy. You could try apologizing to everyone, but it looks like it’s even too late for that now.”
JuanP, there are only two people who listens to your nonsense and support your dirty games and that is billy and anon. Anon is pretty much gone. So whine to billy. You and billy have been spreading hate and resentment for years. I had a backbone and stood up to your filth. I also survived your group censorship session. You have lost loser and I won. I am still here and you hate it. LMFAO.
Admin on Wed, 19th Dec 2018 7:23 pm
Are you mentally retarded Davy?
Davy on Wed, 19th Dec 2018 7:25 pm
No, I am not retarded. Maybe semi-retared. I am DeLUSIOnaL, you dumbass. Can’t you tell the difference? Or are you retarded or sumthing?
Davy on Wed, 19th Dec 2018 7:26 pm
JuanP I think you must be. Admin?? what a lunatic. Where is boney Juan or The Truth gets you high at these days? You are one warped illegal alien.
JuanP on Wed, 19th Dec 2018 7:30 pm
Well, look at my mental state:
JuanP on Thu, 30th Jun 2016 4:56 pm
I think I could use my antisocial, psychopathic, sociopathic skills to convince people to vote for Trump. I can be very convincing when I want and I am excellent at manipulating people.
JuanP on Sun, 30th Aug 2015 5:40 am
…then you simply have a higher opinion of humans than I do. But what can I do? I am after all an admitted antisocial misanthrope. I just think most people suck!
JuanP on Fri, 12th Aug 2016 10:58 am
I stopped caring about humanity’s future a long time ago once I realized it was a waste of my time and energy. Now I think that it would be best for life on Earth if we ceased to exist as a species.
JuanP on Wed, 14th Sep 2016 9:59 pm
I struggle with the fact that I belong to the same species; I find myself emotionally and intellectually incapable of accepting the fact. That is why I consider myself a sui generis individual rather than a human animal.
JuanP on Sun, 26th Jun 2016 12:22 am
As far as I am concerned human beings are a bunch of arrogant and retarded ignorant fools and they deserve what’s coming. Call me selfish if you want, I don’t give a fuck!
JuanP on Fri, 15th May 2015 11:21 am
I did therapy for over a decade and most of it was a waste, but I had one therapist for a year who understood my issues and that helped, though I am still thoroughly screwed up.
JuanP on Tue, 22nd Dec 2015 6:57 am
They make me smile and happy and give me a brief respite from my cronic and acute depression.
JuanP on Sun, 17th Aug 2014 8:19 pm
I have suffered from cronic and acute clinical depression for most of my life, but I wouldn’t have it any other way.
JuanP on Mon, 23rd May 2016 8:53 am
I was just telling my wife yesterday that I would very willingly give my arms, legs, tongue, eyes, ears, nuts, and dick to experience life like normal people do for just one hour to know what it feels like. I have been a seriously depressed realist since I have a memory. My first memory of my life is of leaning against a tree alone in my kindergarten’s playground looking at all the other kids playing, thinking how stupid their behavior was, and wondering why I wasn’t like them. I basically don’t interact with normal people anymore. They have nothing to offer me and I don’t want to give them anything.
Inquiring Minds Want to Know on Wed, 19th Dec 2018 7:32 pm
Davy,
In your statement at 12:47 you referenced an “ebony twink” when in previous posts it was always a “rice twink”. Is this twink an imaginary lover you mention to make people believe you are human?
makati1 on Wed, 19th Dec 2018 7:33 pm
Davy, I don’t give a damn about economic voodoo. It is nothing but assholes who think they know something but never know what is going to happen until AFTER it happens. A bunch of rear view mirror idiots. I have nothing in the market to worry about. I see it going down and still sleep well at night. I hope it breaks new records all the way to the bottom.
Your other comment is about your zero life, not mine. You keep projecting your life unto others whom you want to put down to your level. You keep striking out, snowflake! LOL
Admin on Wed, 19th Dec 2018 7:47 pm
A simple yes or no answer would have been sufficient Davy.
Admin on Wed, 19th Dec 2018 7:53 pm
“Well, look at my mental state:”
Taking all of that time out of your life to find, copy, and paste all of JuanP’s past comments, does not make your mental state look healthy at all Davy.
It makes you look insane.