Saudi Arabia may experience an economic contraction this year due to its decision to extend crude oil production cuts. The country relies heavily on oil, and its slow progress in diversifying its economy has become evident. Saudi Arabia intends to stabilize the oil market by continuing its voluntary oil output cut of 1 million barrels per day until the end of 2023. This announcement led to an increase in oil prices above $90 for the first time this year. However, prices still remain below the average of around $100 per barrel last year. Declining oil production and revenue could result in Saudi Arabia’s economy shrinking for the first time since 2020. Nonetheless, a substantial dividend from state oil producer Saudi Aramco is expected to provide some financial cushion. Analysts anticipate a 9% reduction in production for 2023, making it the largest drop in nearly 15 years for OPEC’s leading producer. Economists now predict a contraction of 0.5% in Saudi Arabia’s gross domestic product (GDP) this year, revised from a previous forecast of 0.2% growth. Despite efforts to diversify the economy, oil remains crucial. The Public Investment Fund (PIF) has made significant investments in various sectors, but the pace of change has not met expectations. The government plans to offer fresh Aramco shares on the stock exchange, generating substantial funds for large projects. However, PIF reported a loss of $15.6 billion last year. Overall, Saudi Arabia’s reliance on oil and slow progress in diversifying its economy pose significant economic risks.

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By hassani

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