2013 will mark the 10th year of unabated economic growth for the Kingdom on the back of elevated oil prices. Oil market dynamics have even become more favorable in the last two years, with the Arabian Light benchmark prices averaging a significant $109 per barrel, a remarkable turnaround from an average of just $18.3 per barrel during 1992-2002. What was the situation before the recent boom cycle?. What are the lessons learned from the weak economic performance in 1980s and 1990s and is the Kingdom well prepared for a future oil price shock a’ la 1986?
It is a fact of life that human beings have a tendency of losing track of history with the passage of time and the arrival of new generations, as previous incidents of economic distress and collapse fade away. And although this tendency is part of the overall human nature, a layman can forget about history as much as he can, but when economists, financiers, and government officials forget or choose to, then this is when crises do happen. Robust government finances, ample fiscal space, elevated foreign assets and a stable financial system might be taken as the norm these days for the Saudi economy, but policy makers must fully be aware that business cycles will not be relegated to the history books. Business cycles that exhibit boom/bust phases will remain a fact of modern economics that policy makers will have to contend with. Global economic activities have experienced four global recessions since World War II, chronologically in 1975, 1982, 1991, and 2009.
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