In the first half of 2015 Saudi Arabia due to the fall in oil prices spent the reserves at a rate of $30 billion a month, Bloomberg has learned in discussions with Prince Mohammed bin Salman, in charge of economic policy of the Kingdom, and his financial adviser Mohammed al-Sheikh. According to the latter, if spending continued at the same level as last April, the country is “totally bankrupt” in just two years.
To avoid bankruptcy, Prince Mohammed has reduced the expenditure budget by 25%, restored strict expenditure control, decided on external borrowing and began preparing for the introduction of VAT and other taxes and fees, according to Bloomberg, explaining that as a result the rate of decline of reserves started to decrease.
Last spring, reminds Agency, the IMF predicted that the available foreign exchange reserves of Saudi Arabia would be enough to withstand five years of low oil prices. According to the Central Bank of the Kingdom, from August 2014 to October 2015 the state reserves dropped from $740 billion to $654,5 billion According to Bloomberg, their volume by the end of 2015 was $627,7 billion compared to $724,5 billion in the beginning of the year.
The budget of 2016, according to the Finance Ministry of Saudi Arabia, showed a deficit of $87 billion, which, according to Abu Dhabi Commercial Bank, is about 11% of GDP. Maximum funding is provided to law enforcement agencies — almost $57 billion or more than a quarter of the budget. Last year the Kingdom had a deficit of $98 billion.
Assessment al-Sheikh, during the oil boom years of the 2010-14 annually about a quarter of the Saudi budget, from$80 to $100 billion, was spent inefficiently. Adviser to Prince Mohammed said that if the first required the approval of the king for contracts valued above 100 million riyals ($26.7 m), then the bar first rose to 200 million riyals, then to 300 million rials and then to 500 million, and eventually the restrictions were not repealed.
Bloomberg calls Prince Mohammed likely future king of Saudi Arabia. He is the son of king Salman and has the title of Deputy crown Prince, being the second in line to the throne. He also holds the post of defense Minister.
The Agency notes that 31-year-old Prince started his career as legal Advisor to the government in 2007 after graduating from the University of king Saud. In 2009, the then king Abdullah refused to raise it in the post to avoid accusations of nepotism, and Mohammed began to assist his father, who worked as the Governor of Riyadh, the capital of the Kingdom.
In 2011, king Abdullah appointed Prince Salman Minister of defense, but forbade his son to meddle in the work of the Ministry, according to Bloomberg. Mohammed then began the reorganization of the building Fund of his father, and founded a charitable structure to help Saudi youth.
In 2012, the father of Mohammed became crown Prince and six months later appointed his son head of his court. In the last years of his reign, king Abdullah, who died in the spring of 2015, Mohammed has instructed the audit of the defense Ministry. In the course of it, revealed that the Agency bought a lot of unnecessary or obsolete weapons, told Bloomberg managing the administration of the Ministry Fahal al-Eissa.
In early April, Prince announced the creation of the world’s largest sovereign Fund, whose assets will have to be $2 trillion. He said that after the state-owned Aramco oil to the stock exchange its assets will accrue to the Fund and will be used to invest in non-resource industries. Mohammed, he said, expects to save Saudi Arabia from oil dependency in 20 years.
On Tuesday the British newspaper Financial Times wrote that the Prince was behind the failure of oil negotiations for the freezing of oil production, which failed to clinch on Sunday because of the sharp changes in the Saudi position. According to the publication, this was due to the refusal to participate in the meeting of Iran, which is the main rival of Saudi Arabia for influence in the region.
Prince Mohammed told Bloomberg that he was not concerned with oil prices. According to him, if they grow up, they will have more money for investment, non-oil, and if you fall, then the Kingdom will expand its presence in the growing Asian market.