The Financial Crisis of 2008 and Saudi Arabia

Abstract

The current economic and financial crisis was driven by the reversal of the three positive 'shocks' that developing countries experienced during the recent boom period: exceptional financing, high commodity prices and , for a significant number of countries, large flows of remittances. No country in the world will be spared from the effects of the financial crisis and ensuing global recession. The paper focuses Saudi Arabia; it has completely shifted the focus of economic policy from controlling inflation to restoring confidence in the financial sector. We see the following key implication for the Saudi economy. Finance for local and foreign companies doing business in Kingdom will be less easily available and more expensive .Lower oil revenues will mean the end to the huge budget and current account surpluses in coming years .If the crisis encourage Arab government to restructure their economies, they will be better placed when the international economy picks up Saudi Arabia and some other Gulf States are taking these challenges much more seriously than in the past. They are investing large sums in upstream hydrocarbon projects to get more value from their oil, and are trying to diversify their economies away from petroleum products.