Saudi Arabia may face cash crunch after 5 years

The indications are strong such that mighty Middle East (ME) region also may not sustain cheaper oil prices for long. If oil price continues to hover at $50 per barrel, the majority of Gulf nations will run out of cash in the next five years, according to International Monetary Fund (IMF). There's no exception to Saudi Arabia, the leader of Organization of Petroleum Exporting Countries (Opec), Oman and Bahrain. The oil price drop is expected to pull $350bn out of the ME region this year alone. The current account deficit of Saudi Arabia may touch 20 percent of its GDP this year.

The oil price crashed from $100 a barrel in 2014 to $45 this year eroding the liquidity position of Gulf nations with a surplus budget. If the present situation continues, then it'll cause deficit budget for Gulf nations, cautions IMF.

The oil-rich Gulf nations started feeling the heat of oil price drop at a time when the region is undergoing a turbulent political unrest and violence. This caused much volatility in financial markets and also impacting spending levels on several projects.

IMF in its latest survey further estimated that Saudi Arabia will suffer a negative balance of 21.6 percent general government overall fiscal balance in 2015 and a negative balance of 19.4 percent in 2016. The negative balance was just -3.4 percent in 2014. Saudi Arabia has $654.5bn foreign reserves, however, the cash reserves are eroding very fast.

Saudi Arabian Monetary Agency suffered a loss of $73bn due to oil price drop. The Kingdom of Saudi Arabia (KSA) gets 90 percent of its total revenues from oil sales. As a result, the budget deficit, owing to oil price drop, is expected to be over 20 percent of GDP for this year. The kingdom is also spending huge amounts on defense and military strengthening. The defense budget is pegged at $80.8bn.

The break-even oil price to support the budget, Saudi Arabia needs $106 per barrel. Hence, the present surplus may not sustain for more than five years for Saudi Arabia, if oil price continues at $50 per barrel.
Saudi Arabia has raised $4billion by offloading bonds in early 2015. Subsequently, it mobilized $70bn from asset management firms including BlackRock.

The current account deficit is expected to reach 20 percent of its GDP this year. The war chest of Saudi Arabia stands at $700bn, but it's fast declining. 

The break-even oil prices for Gulf nations are $9 for Kuwait, $56 for Qatar, $72 for Iran, $73 for UAE, $81 for Iraq, $106 for Saudi Arabia and $107 for Bahrain, according to estimates by IMF.