RIYADH--Saudi Arabia has avoided an economic crisis due to low oil prices this year but the outlook for state finances and growth will remain murky for many months to come, businessmen and analysts in the kingdom say.
Six months after the government launched its most radical economic reforms in decades, it has scored several victories. Drastic spending cuts seem to be reducing its budget deficit, which totalled a record 367 billion riyals ($98 billion) last year, by much more than originally planned.
A $17.5 billion sovereign bond issue last month opened an overseas borrowing channel which Riyadh can use to slow the drawdown of its foreign reserves, buying more time to adjust its economy to an era of cheap oil, and for the foreseeable future almost eliminating the risk of a currency devaluation.
The government has accomplished this without any significant political backlash. While ordinary Saudis grumble at the austerity on social media, many say they understand the need for it, and businessmen praise the authorities' decisiveness.
But big questions remain. It is not clear whether the government can continue cutting its deficit rapidly without pushing the country into recession, and many corporate executives think the worst of the economic slump is yet to come.
"Next year there will be high uncertainty, though we do not expect a huge decline," said Mazen al-Sudairi, head of research at local firm Al-Istithmar Capital. "The private sector is facing a lot of challenges."
A foreign banker in Riyadh, who like many executives declined to speak publicly for fear of irritating Saudi officials, agreed the economy had escaped a fiscal and currency crisis that loomed at the start of 2016. Central bank data shows no sign of rising capital flight from the country, he noted. "But this does not mean the basic problems are solved," he said. "Next year will be a very tough year."
Bankers in contact with Saudi economic officials expect the 2016 budget deficit, which will be revealed when the government announces its 2017 budget plan in late December, to come in well below Riyadh's original projection of 326 billion riyals. Sudairi predicted a deficit of 190 billion riyals; Jadwa Investment, a leading investment bank, forecasts 265 billion riyals. Such a figure would allow Riyadh to claim major progress in its effort to eliminate the deficit by 2020.
Some of the progress, though, is due not to sustainable spending cuts but to unpaid bills. The government has reduced or suspended payments that it owes to construction firms, medical establishments and even some of the foreign consultants who helped to design the economic reforms. Sudairi estimated unpaid dues for construction firms alone totalled 80 billion riyals.
This reduces Riyadh's outgoings for now but stores up obligations in the future. It also worsens the impact on the economy of state spending cuts, and has contributed to severe financial problems at some big construction firms.
