Is Oil Forever? Saudi Government Revenue Diversification is Now Necessary (Published)
This research aims to identify the potential government revenue diversification sources in Saudi Arabia. The purpose behind this was the fact that the Saudi economy rely on oil as main source of export and fiscal revenue. That said, the shock in oil prices directly affect government revenue. The current Saudi economic model has weaknesses due to its over-reliance on oil revenue. Therefore, an increasing economic divarication is paramount as it would reduce exposure to volatility and uncertainty in oil market. To achieve above stated aim, secondary data is collected from the Saudi Ministry of Finance, IMF, world bank and OPEC from 2000- 2015. The data analysis approaches used in this research is a great contribution to knowledge as it covers three main analysis tools: Trend analysis, Correlation and Contribution analysis. Trend analysis revealed that although Saudi revenues are showing an increasing trend but the high proportion of oil revenues cause a fall in total revenue due to dropping oil prices in global market. This finding was further supported by correlation analysis. The results show strong positive correlation between total revenue, oil revenues and non-oil revenues before financial crisis 2007-2008 however, the situation changed to a negative correlation between total revenues and non-oil revenue sector signalling to a presence of revenue diversification effort. Similarly, the correlation between oil prices and revenues show high positive correlation but negative correlation with production proving the fact that oil production increases in Saudi Arabia when oil prices drop to cover the revenue need of the economy. These results led the researcher to examine the potential sources that can help Saudi policy makers to diversify revenues and reduce revenue volatility. Contribution analysis is employed to examine the proportion of other sectors in total revenues. Investment, document fee and taxes are recognized as main predictors of total revenues other than oil revenues. This research concluded that revenue diversification is necessary not only for Saudi economy but the results can be generalized to those economies too which are relying on only one or few revenue sources. The study shows great implications for policy makers, government and authorities responsible for stabilizing the economy
Keywords: Diversification, Revenues, Saudi Arabia, oil