A tale of two economies
Summary: the Saudi economy sits at one end of the Middle East
table, strong, assured and buoyant and at the other end sits Lebanon
with a broken economy and political paralysis that the country’s wealthy
elite are in no hurry to end.
Last week went well for Mohammed bin Salman, what with fist bumping
Joe Biden in Jeddah and jousting with the US president when he raised
the case of Jamal Khashoggi. The crown prince was, reportedly, quick to question
what Biden was doing about the murder of the Palestinian-American
journalist Shireen Abu Akleh: "You can't impose your values on us by
force. Remember Abu Ghraib? What have you done about Shireen Abu Akleh?"
His aggressive response, unprecedented in US-Saudi relations, was a
measure of how far MbS has come in consolidating his power within the
kingdom while using the economic clout high oil prices have given him to
underscore his thinking that Saudi Arabia doesn’t need America the way
previous Saudi rulers believed it did. If anything the shoe is on the
other foot, with Biden heading into mid-terms that the Democrats look
set to lose heavily as inflation surges, much of it driven by high energy costs.
The latest economic forecasts have put more wind in MbS’s already
expansive sails. London-based Capital Economics (subscription only)
citing a strong first half of 2022 says that GDP will grow by 10%, a
call that is well above consensus. Much of that bullish prediction is
based on oil:
The oil sector has sustained its strong momentum. Production rose
from 10.36mn bpd in April to 10.42mn bpd in May, translating into
growth of 22.9% y/y…. Looking ahead, the prospects for the oil sector
look very bright. The decision by OPEC+ to raise its output quotas by
50% in July and August will provide an additional boost to Saudi
production. And if, as we expect, OPEC+ removes the shackles of quotas
beyond September, Saudi is one of the few members that will be able to
capitalise and we think that output will reach a record high by
late-2023.
Capital Economics says the economy, and particularly the private
sector, will be further boosted by the loosening of fiscal policies now
underway and the distinct possibility of a VAT cut. (The rate was tripled in 2020 to 15% to shore up government finances tagged by then low oil prices.)
Although Biden and MbS hit an impasse on the issue of human rights - in truth that was not a priority for the US president – they did manage a shared communique on the economic quagmire that Lebanon remains firmly stuck in.
As reported by L’Orient Today:
In a joint statement, the two men “noted the importance of
forming a government and implementing structural and global reforms in
politics and economy so that Lebanon can overcome its crisis and not
constitute a launchpad for terrorists, drug trafficking and criminal
activities which threaten its stability (and) the region’s security.”
Using the King Salman Relief Center the kingdom funnnelled US$ 36 million in humanitarian aid to Lebanon in March. That was followed in April by the full restoration of diplomatic relations that had ruptured over critical comments by Lebanese politicians over the Yemen war.
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