Saudi Arabia Has maintained a dollar peg since 1986 at 3.75 Saudi Riyal for every dollar.
But is that going to change?
The oil price crash of 2014 and its continuation has so far caused havoc for the Saudi economy and latest data suggests despite oil’s recovery from $27 per barrel in2016 to $50 per barrel in 2017, the situation hasn’t changed much. Here are some numbers to ponder upon.
- Saudi Arabia’s economy technically is in a recession. The GDP has contracted for two consecutive quarters in 2017. This is the first time the economy has entered recession since the great recession of 2008/09. In the first quarter GDP contracted by 3.7 percent compared to the last quarter of 2016 and by 2.3 percent in the second quarter compared to the first.
- Saudi Arabia’s foreign exchange reserve has declined from $745.8 billion in August 2014 to $487.6 billion as of August 2017. That is almost 35 percent decline over the course of 3 yrs.
- Loan growth has been negative for six consecutive months.
- The economy remains in deflation as price contracted for eight consecutive months to August.
- The budget deficit has widened for three consecutive years. In 2016, the budget deficit was 17.3 percent of GDP.
- Military expenditure in 2016 was lowest in four years.
- Business confidence recovered recently from negative but still at lowest since the Great Recession of 2008/09.
In addition to the above, Saudi Arabia’s Monetary Authority (SAMA) has maintained interest rate at 200 basis points since the Great Recession, whereas U.S. Federal Reserve increased the interest rate by 100 basis points since 2015 and that adds to the pressure on Saudi peg.
