Saudi Arabia is facing de ation for the rst time in over a

decade, here's what you should know

Prices have been sinking in the kingdom.
2017-02-22 15:02

By Jason Lemon (/a/jason-lemon)

Managing Editor
(/a/jason-
Prices have been sinking in Saudi Arabia, as the kingdom faces de ation (http://www.arabianbusiness.com/saudi-
lemon)
arabia-sees- rst-de ation-for-more-than-decade-664336.html) for the rst time in more than a decade.

For consumers, this means things are getting cheaper. But, it also signals the weakness of the Saudi economy.

Here's a look at what you should know.

1. Prices have fallen for the rst time since the early 2000s

Prices have dropped 0.4 percent when compared to Jan. 2016. The decrease is sharp, having dropped 0.2 percent
between December 2016 and last month.

Food and beverage prices dropped even more drastically than the overall average, by 4.2 percent. Much of the
kingdom's food supplies are imported.

This is the rst time prices have seen a decline in the kingdom since the early 2000s, according to Reuters
(http://www.reuters.com/article/saudi-economy-in ation-idUSL8N1G65DR).

2. Low oil prices have forced Riyadh to make changes

 The Saudi economy is dependent on oil Source: Flickr/Day Donaldson ()

Saudi Arabia's economy is dependent on oil and low oil prices have taken their toll. Riyadh's budget de cit reached a
record highof $98 billion in 2015. This fell to $79 billion (http://www.cnbc.com/2016/12/22/saudi-arabia-cuts-2016-
budget-de cit-to-boost-2017-spending.html) in 2016.

Oil sold at $30 per barrel at the beginning of 2016,but increased

(http://www.oxfordbusinessgroup.com/news/saudi-arabia-year-review-2016) to hover around $50 by the end of
the year. This is still signi cantly down from previous averages that were over $100 per barrel.

As a result, the kingdom introduced Vision 2030, a national transformation plan thataims to create jobs, implement
taxes, cut subsidies and diversify the kingdom's economy. Of cials have warned that if the plan wasn't followed, the
kingdom would face bankruptcy (http://stepfeed.com/saudi-deputy-minister-kingdom-faces-bankruptcy-in-3-4-
years-unless-economy-reforms-8285?channel=stepfeed) within a few years.

3. The kingdom has made signi cant spending cuts and sold debt
 A glimpse of Riyadh's skyline

In September, the kingdomannounced a 20 percent pay cut (http://stepfeed.com/saudi-arabia-has-new-

regulations-here-s-what-you-should-know-4644?channel=stepfeed)for all ministers and a 15 percent pay cut for
Shura Council members. It also switched to the Gregorian Calendar in an effort to save 11 days of payments to public
sector employees. Bonuses and other perks were also targeted by the reforms and sales taxes have been introduced.

More than two-thirds of Saudis work for the government, with the kingdom spending roughly 45 percent of its budget,
or $128 billion, to pay their salaries in 2015.

The kingdom alsosold$17.5 billionin debt (http://stepfeed.com/saudi-arabia-just-sold-a-whopping-usd17-5-

billion-of-debt-4651?channel=stepfeed) in October. This was the largest-ever bond sale from an emerging market.
The sale was hailed as a major success for the worlds top oil exporter as it attracted investor interest totaling $67
billion, nearly four times the amount of the sale.

4. Saudi Arabia's economy is predicted to enter a recession this year

 King Fahad Road in Riyadh Source: WikiMedia (https://commons.wikimedia.org/wiki/File:KING_FAHD_ROAD_FEB1.JPG)

For the rst time since 1999, Saudi Arabia is forecast to fall into an economic recession in 2017
(http://stepfeed.com/saudi-arabia-is-headed-for-an-economic-recession-here-s-what-you-should-know-3139).

The kingdom's oil sector growth will continue to slow as austerity measures are implemented,according to an
analysis by BMI Research (http://stepfeed.com/saudi-arabia-is-headed-for-an-economic-recession-here-s-
what-you-should-know-3139).The report predicts that the Saudi economy will contract by 0.2 percent in real terms
next year. In 2016, the economy grew by just 0.8 percent.

5. Experts expect prices and the economy to bounce back