Executive Pay: The Curious Case of Carlos Ghosn’s Arrest
February 12, 2025
Introduction: What is Systemic Risk and How Does it Affect Business Globalization has brought the world together and the rapid spread of Information Technology or IT has made us all interconnected, networked, and always on in a 24/7 paradigm. This means that the convergence of globalization and IT has resulted in businesses being able to […]
Managing Business operations in current times is a big challenge. Apart from having to keep looking at the bottom lines and market shares, the managements have another major are to be concerned about which is to continually keep assessing the risk to the business from all quarters and build Disaster Recovery plan in place. It […]
The Emergence of the Internet and the High Hopes that accompanied it For those of you old enough to remember the emergence of the internet in the 1990s, you would have no doubt been taken in by the then prevailing optimism and hope about the medium finally ushering in an egalitarian and a just world. […]
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The Persistence of the Digital Divide The advent of the internet revolution raised hopes that there would be an egalitarian society where free sharing of information and knowledge would eliminate the uncertainties and the power of gatekeepers of knowledge by making it free and easy to search and find. Further, there were hopes that the […]
Saudi Arabia is believed to be one of the richest countries in the world. This desert country has a vast oil-rich landmass. This has led Saudi Arabia to have connections to some very powerful allies. The United States and almost all western countries may be ideologically opposed to the Saudi empire. However, economic benefits unite them. The western powers are hugely dependent on Saudi Arabia’s oil. On the other hand, the Saudi Arabia royal family has massive investments in financial assets in these western countries. This quid pro quo arrangement has raised many eyebrows but never enough to destabilize the transactions.
Hence, this desert country is a financial superpower of sorts. However, this financial powerhouse has come under increasing attack. Saudi Arabia is running out of cash at an accelerated pace. From having a budget surplus of 12% to a budget deficit of 18%, Saudi’s fortunes have turned rather quickly.
The speed at which, Saudi is burning cash could cause it to become bankrupt within the next decade or so. World institutions like International Monetary Fund and the World Bank have warned the Saudi government and the world about the deteriorating cash position. It is not long before the rating agencies start having a negative outlook on the finances of Saudi Arabia. If the situation is not managed immediately, Saudi Arabia may end up becoming another Europe.
In this article, we will discuss the causes that led Saudi Arabia to this precarious position as well as the changes that have been made to undo the problem.
Apart from the government, even the average person in Saudi Arabia is overly dependent on oil. Car ownership is a norm. Given the rock-bottom gas prices, fuel efficiency is considered to be an absurd idea. Saudis drive some of the most expensive and flamboyant cars which give the worst mileage possible.
The problem is that the price of oil is heavily subsidized for the local people. Hence, for every car that is being driven, the state is paying a huge cost. This is burning a hole in public finances. Any kind of commercial activity in Saudi Arabia is also powered by fossil fuels. Once again, this is heavily subsidized by the government.
To sum it up, it is likely that Saudi Arabia may end up being a net importer of oil in the next few years. This idea may seem absurd at face value but has definite mathematical plausibility. Since the domestic consumption of fossil fuels is highly subsidized, it is wreaking havoc on the finances especially now when the oil prices are at an all-time low.
The Sultan has proposed the following changes to avoid the Saudi financial catastrophe.
To sum it up, Saudi Arabia is in deep trouble. Unless severe changes are made to its public finance, their economy is looking at a very bleak future.
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