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Low Oil Prices Force Saudi Arabia To Consider Privatizing State-Held Assets

The world’s largest oil exporter, Saudi Arabia, plans to put up for privatization state-held assets in the healthcare, education, and water utility sectors in order to raise money while its oil revenues have shrunk with the low oil prices and the crash in demand.  

Saudi Arabia could receive billions of Saudi riyals from such privatizations over the next five years, its finance minister Mohammad Aljadaan said at a video forum hosted by Bloomberg.

The biggest asset sale that Saudi Arabia has made in recent years was the initial public offering (IPO) of 1.5 percent of its oil giant Saudi Aramco in December 2019, with which the Kingdom received US$29.4 billion.

However, privatizations in other sectors have been slow to take off, Bloomberg notes.  

Earlier this year, after the price crash it helped create by flooding the market with oil, Saudi Arabia tripled its value-added tax (VAT) and suspended cost-of-living allowances as part of a new round of painful austerity measures to save its finances. As a whole, Saudi Arabia targeted to save US$26.6 billion (100 billion Saudi riyals) from the measures, which also included canceling, extending, or postponing some operational and capital expenditures for some government agencies, as well as reducing provisions for a number of programs and major projects this year.   

Earlier in July, the International Monetary Fund (IMF) said that the price plunge and the production cuts would hit oil exporters in the Middle East and North Africa (MENA) hard, with the combined oil income for those countries expected to plummet by US$270 billion this year compared to 2019. 

The six countries of the Gulf Cooperation Council (GCC)—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE)—are set to accumulate as much as US$490 billion in combined government deficits between 2020 and 2023, S&P Global Ratings said this week.

By Tsvetana Paraskova for Oilprice.com

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  • ema chris on July 23 2020 said:
    The privatization of various government assets in Saudi Arabia is part of an old plan and Vision 2030. it has nothing to do with the decline in oil prices in recent months. the assets have been identified three years ago.
  • Mamdouh Salameh on July 22 2020 said:
    Unlike an increase in value added tax (VAT), privatizing state-held assets is one-off event. The Saudi objective is to stave off having to borrow foreign money or use some of the country’s financial reserves estimated $460 bn to offset a gaping budget deficit as a result of low oil revenue.

    For Saudi Arabia and other Gulf countries, there is no alternative to the diversification of their economies. Saudi Arabia was well into diversification according to its Saudi Vision 2030 but the collapse of oil prices as a result of the COVID-19 pandemic brought it to an immediate halt.

    Without the influx of billions of dollars of oil money, multi-billion projects that are deemed vital for Vision 2030 will be delayed or even shelved indefinitely. Moreover, the economy will not be able to create more than 6 million jobs needed to employ Saudi Arabia's youth.

    The Saudi economy is expected to shrink this year by 5.2% according to the International Monetary Fund (IMF). However, it is also projected to grow by 3.1% next year.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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