The past month has brought the clearest signs yet that a fiscal squeeze in Saudi Arabia is looming. According to leaked memos, the Ministry of Finance has ordered government entities to halt new projects, freeze hiring and postpone purchases of new cars and furniture. Meanwhile, comments from Saudi Oil Minister Ali al-Naimi suggest that policymakers are considering following their counterparts in the UAE by cutting energy subsidies. And finally, there are increasing rumours that the government is looking at a wave of privatisations. Saudi Arabia’s large fiscal reserves and low level of debt mean that the country can afford to prolong the policy adjustment to cheap oil. Even so, with fiscal tightening on the way, we still think that the consensus is too optimistic on the Kingdom’s growth outlook.
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