Analysis on Saudi Arabia's Fiscal Policy and the Oil Prices Assignment

Analysis on Saudi Arabia's Fiscal Policy and the Oil Prices - Assignment Example Policy Recommendations 6.1: Shrinking the Government 6.2: Diversifying the Economy 6.3: Energy Prise Reform 6.4: Regulation for Increased Efficiency 6.5: Adding Renewable Source of Energy 6.6: Nuclear Power Ambition Executive Summary The fiscal policy of any nation is the backbone of its prosperous future. The fiscal policies of oil exporting countries are viewed with concern all over the world because oil price is the determining factor of prosperity for all the world’s leading nations. Saudi Arabia is a prominent oil exporter of the world. Its economic policies influence the cost of oil it is exporting directly and the industrial development of many other nations indirectly. Though Saudi Arabia’s fiscal policy is appreciated as a balanced and best one by reputed institutions like International Monetary Fund (IMF), there are countless untold issues hidden under it. Oil is a highly diminishing form of natural energy. The government is taking many productive steps to pro tect this sustainable energy and thinking about alternate ways of employment, other than oil drilling. The paper discusses the important issues on Saudi Arabia’s fiscal policies and gives useful recommendations to overcome them effectively. Introduction King Abdal Aziz ibn Al Saud created the Saudi Arabia kingdom by uniting several small Arabic nations together in 1932. This Middle East Peninsula covers over 2.23 million square kilometres, most of which are oil rich desserts (Hitti & Abed, 1974). Oil drilling became an important and thriving business in the area by 1950's. Since then drilling oil has been main occupation of the nation for the past 7 decades. All the progressive measures of the government from improving infrastructure to transport facilities depend upon the profits generated by the oil exported to the developed countries. The countercyclical fiscal policies of Saudi Arabia won accolades around the world by the way it handled the global economic downturn in 200 8-2009. The savings of the surplus during the last 5 years enabled the government to manage the recession with poise and comfort. But, there were several hidden truths behind this. Thousands of labours or manual workers lost their job in the recession. Planes were booked in bulk to transport these people back to the eastern countries where they came from. Several major construction projects related to the industrial and infrastructure needs of the country were stalled until the world economy regained itself. According to the neoclassical growth model in economy, the long-term growth is determined by continuous supply of productive resources and productivity. The governments expansive spending doesn’t seem to give importance to the productive supplies. If the countries major plans startle, at the minor oil rate infraction due to problems in the world economy, how adverse would the effects be if the sustainable oil is depleted completely. Saudi Arabia cannot take a single stand in this issue. It should consider the stand of its neighbouring countries exporting oil too. Here is a table showing the list of its oil exporting co-countries. Figure Reference: (Sturm, M. Gurtner, Francois & Alegre, J, 2009, p - 8) Considering the fiscal performance of all the major oil dependant countries like Algeria, Nigeria, Russia and Saudi Arabia, the main problems faced by them are 1. The sudden sharp fall of oil price 2. The highly sustainable natural resources 3. The challenges arising out of specific domestic issues (Low cost oil