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Saudi Arabia to spend big after country’s economy shrinks

Saudi Arabia to spend big after country's economy shrinks

Saudi Arabia’s response to its contracting economy is to invest in major infrastructure projects and privatise its oil company

Saudi Arabia’s Crown Prince Mohammed Bin Salman attends a cabinet meeting during the approval of the 2018 budget (Reuters)

Saudi Arabia said on Tuesday its economy contracted for the first time in eight years due to painful austerity measures as it announced record spending to stimulate growth.

The OPEC kingpin said gross domestic product for 2017 shrank by 0.5 percent due to a drop in crude production in line with an agreement with major oil producers aimed at boosting prices.

Oil sector GDP fell by two percent in 2017, the finance ministry said.

The last time the Saudi economy contracted was in 2009, when GDP fell by 2.1 percent after the global financial crisis sent oil prices crashing.

Riyadh also posted a higher-than-expected budget deficit in 2017 and forecast another shortfall in 2018 for the fifth year in a row due to the drop in oil revenues.

It unveiled plans to spend more than ever next year in a bid to stimulate the sluggish economy, saying it expects GDP to grow by 2.7 percent.

Crown Prince Mohammed bin Salman, the architect of the “Vision 2030” programme of reforms for a post-oil era, has announced a host of mega projects, including a futuristic megacity with robots and driverless cars, which require about $500bn in investments.

He said the 2018 budget will have the largest state spending in the kingdom’s history, which was evidence of success despite low oil prices. He said improving living standards for Saudi citizens was a government priority, according to comments on the state news agency SPA.

The cornerstone of the reforms is an initial public offering of nearly five percent of national oil giant Aramco planned for next year.

Prince Mohammed has also been behind decisions to allow women to drive and to lift a 35-year-old ban on cinemas.

Last month, the heir to the throne launched a wide-ranging crackdown on dozens of elites, ostensibly to tackle corruption, but experts say it was also a way of consolidating his grip on power.

Since 2015, the ultra-conservative country has introduced a series of price hikes on fuel and electricity.

It has also imposed fees on expats and is preparing to introduce value-added tax in the new year.

The finance ministry said unemployment among Saudis rose to 12.8 percent in June, up slightly from last year.

The government has allocated $13.9bn for a cash transfer programme called the Citizen Account to compensate the needy for hiking prices.

The kingdom has set aside $260.8bn for expenditure, up 10 percent from this year, said the finance ministry.

“The 2018 expansionary budget includes a number of new development projects,” said Prince Mohammed bin Salman, who oversees economic affairs.

“About 50 percent of the new budget will be financed from non-oil sources,” he said, quoted by the official Saudi Press Agency.

source :http://www.middleeasteye.net/news/saudi-arabia-spend-big-after-countrys-economy-shrinks-369296740

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Iran Proposes Visa-Free Regime with Iraq, Trade in Own Currencies

Iran Proposes Visa-Free Regime with Iraq

Iran’s first vice-president put forward a proposal to lift visa requirements for the Iranian and Iraqi travelers, and also called for trade exchanges between the two countries using their own currencies, namely rial and dinar.

Addressing a meeting of high-ranking delegations from Iran and Iraq, attended by the visiting Iraqi Prime Minister Haider al-Abadi and held in Tehran on Tuesday, Iranian First Vice-President Eshaq Jahangiri called for the expansion of banking cooperation between the two neighbors by removing the trade obstacles.

To that end, he proposed, Iran and Iraq can begin to trade using their national currencies.

Jahangiri then noted that the political, economic and security cooperation between Iran and Iraq has reached such a high level that they need to formulate a “comprehensive document on trade and economic cooperation.”

The vice president also pointed to the huge number of Iranian pilgrims traveling to Iraq every year, suggesting that Tehran and Baghdad should sign an agreement to lift the visa restrictions.

For his part, the visiting Iraqi prime minister voiced Baghdad’s readiness to boost relations with Tehran in all fields.

Iraq and Iran are in the same front in the fight against terrorism, Abadi added, saying the Takfiri terrorist groups in the Arab country are on the brink of destruction.

Heading a delegation, Abadi arrived in Tehran on Tuesday and held meetings with Leader of the Islamic Revolution Ayatollah Seyed Ali Khamenei and with Iranian President Hassan Rouhani.

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OPEC chatroom dead as Qatar crisis hurts Gulf oil cooperation

Qatar crisis hurts Gulf oil cooperation

* For first time, Gulf oil ministers not meeting before OPEC

* Qatar crisis to complicate producer group’s decision-making

* OPEC’s Sunni wing weakens as Iran, Iraq raise game

DUBAI/LONDON, Nov 23 (Reuters) – OPEC’s most powerful internal alliance, bringing together the oil producer group’s Gulf members, is disintegrating fast.

As a six-month-old spat between Saudi Arabia and Qatar deepens, the organisation’s Gulf ministers will have to scrap their tradition of meeting behind closed doors to agree policy before OPEC holds its twice-yearly talks, OPEC sources say.

“We used to have a WhatsApp group for all ministers and delegates from the Gulf. It used to be a very busy chatroom. Now it’s dead,” said a senior source in the Organization of the Petroleum Exporting Countries.

Four other sources said there had been no official contact on oil policy between the Gulf Arab nations, in a grouping known as the Gulf Cooperation Council (GCC).

The GCC includes OPEC members Saudi Arabia, the United Arab Emirates, Kuwait and Qatar and non-OPEC Oman and Bahrain. OPEC meets on Nov. 30 in Vienna to decide whether to extend global output cuts beyond March.

OPEC kingpin Saudi Arabia and the UAE cut ties with Doha in June, saying Qatar backed terrorism and was cosying up to rival Iran. Qatar rejected the accusation.

“The ministers can’t meet,” another OPEC source said. “They may relay the message through the Kuwaiti or the Omani oil ministers, but Saudi and the UAE cannot meet publicly with the Qataris.”

Kuwait and Oman have refrained from taking sides in the dispute, over which Kuwaits Emir Sheikh Sabah has led regional mediation.

SHI’ITE OPEC ALLIANCE

To be sure, OPEC has survived worse crises and operated under even greater strain, including the Iran-Iraq war in the 1980s, Iraq’s invasion of Kuwait in 1990 and proxy wars fought by Saudi Arabia and Iran over the past decade.

None of the OPEC sources suggested the Qatar crisis would derail a widely expected decision by OPEC to extend price-boosting output cuts until the end of 2018, as almost all producers agree on the need to maintain policy.

But dialogue within OPEC is likely to be complicated as the stand-off strikes at the heart of OPEC’s efforts to form a united front to stabilise a fragile oil market. It may also weaken the group’s Sunni faction at a time when predominantly Shi’ite Iran and Iraq are raising their game.

As OPEC president in 2016, Qatar was instrumental in bringing together oil producers – including non-OPEC Russia – to agree the supply-reduction deal.

“If the GCC is dead politically, then it will certainly have implications for OPEC policies. Not that it will necessarily disrupt decision-making, but it is making it more challenging and complicated,” the senior OPEC source said.

“Qatar is not talking to the Saudis or the UAE, so OPEC’s Sunni wing is weaker. On the other hand you have the rapprochement between Iran and Iraq, a Shi’ite alliance long in the making,” the senior source added.

With the world’s fourth- and fifth-largest oil reserves, Iraq and Iran are seen as the OPEC countries with the largest output growth potential and hence together can be the biggest challengers to the leading role Riyadh has played for decades.

Iraq has resisted calls from the United States to lessen its reliance on Tehran after Iran effectively helped Baghdad stifle a Kurdish independence referendum. Iran also plans to import significant volumes of Iraqi oil.

“The Saudis perfectly understand that challenge and are doing their utmost to lessen Iran’s influence on Iraq,” a third OPEC source said.

Relations between Riyadh and Baghdad have been improving in recent months, with the two states joining hands to coordinate their fight against Islamic State and on rebuilding Iraq.

With a thaw in relations, Saudi Energy Minister Khalid al-Falih visited Iraq in October to call for increased economic and energy cooperation, the first Saudi official to make a public speech in Baghdad in decades. (Editing by Dale Hudson)