An Economic Review of Saudi Arabia and Bahrain - Essay Example

An economic view plus recommendations of Saudi Arabia and Bahrain of An assessment and consequent recommendations for the SaudiArabia economy The mighty Saudi Arabia economy dependents greatly on the oil proceeds. The oil profits account for over ninety percent of all the experts and the GDP that the nation experiences. On the other hand, the Saudi Arabian economy is dependent on the service sector. The service sector is a domination of foreigners who amount to about nine million employees. Originally, the country was dependent on the agriculture as the backbone of the economy. The instance was evident before the eventful discovery of the oil refineries in the 1930s. The nations rapid growth was after the oil recessions of the 1970s. The overdependence on oil poses a threat in the case that the country oil proceedings decline exponentially. The government needs to venture into other instances that tend to support the oil production and supplement the countrys income to a greater extent (Roberts, 2014). One of the ways that the situation is possible is through the investment in the service sector. The proceedings from the oil are useful in the provision of the educational requirements that enables the production of a skillful workforce. The state also invests in both the economic and social infrastructure that allows the economy to run and create more opportunities for foreign investments. However, the instance is not enough. The reason is that education is one of the long-term investments that can impact the economy after a while. The instance is of an advantage since the country is capable of self-sustenance in the current period. Nevertheless, the state needs to take drastic measures in order to deal with the upcoming event that includes the reduction of the oil. The government needs to create an entrepreneurial class that creates job opportunities in the economy. The state also has the responsibility of stimulating savings and investments that are in the form of a large scale and small sizes. The fiscal policy is the most useful tact to employ. The government reduces the taxation that it charges the population. On the other hand, the government tends to increase the spending in the economy ion order to increase the money supply. The money that circulates actively in the economy creates a lot of surpluses that is useful to the local population. The instance makes sure that the local people can invest in small business ventures. The government can also enact protectionism to protect the indigenous industries. The example will enable the industries to be safe from the competition that arises from the foreigners that is unhealthy. Through protectionism, the nation can empower its population in the shortest period possible. The instance in turn creates stability in the economy. Another useful venture is the application of the monetary policy. The monetary policy is a scenario by what the authority of the nation that controls the system tends to control the money supply of an economy. The instance is in the need to create an interest rate that tends to create stability in regard to commodities prices in the country. In addition, the interest rate tends o stabilize the currency and thus creating trust of the money in both the local and the international market. In the short run, the Saudi government can employ the expansionary policy. The plan enumerates the rapid creation of the money supply that tends alleviate the unemployment levels. The instance is through the provision of credit that is easy to access to both the auxiliary facilities and the general public (The Political Economy Of Saudi Arabia, 2008). The state thus needs to open the open markets operations. The instance involves the purchasing of the particular Treasury notes that the state has in the member banks. The state offers a good price that all the banks in the region are willing to resell the notes. Through the aspect, the state creates a great room for credit in the country. The banks in turn tend to reduce the rates of offering loans and consequently increase the rate that consumers spend. The other instance that is useful is through the control of the bank reserves that every bank owns in the central bank. The state can reduce the rates of funds that tend to affect the bank reserves. Through the venture, the well-performing banks can lend money to the less performing institutions since they have a surplus of the bank reserve. The instance leads to even lower bank rates that later transform to lower credit rates for the population. Another significant aspect is the control of the discount rate. The discount rate is the particular charge that the government employs on charging the banks that acquire loan through the discount window. A significant drop in terms of the lending rate reciprocates by an increase in accessibility of loans. However, the window is for last resort of the banks, and the rate should make sure that it creates room for the last resort. In the achievement of the fiscal and the monetary policy, the government can also invest in other sectors of the economy. For instance, the government is capable of enabling the agricultural sector. The reinvestment ion the sector leads to a reduction in the food imports and thus gives a boost to the balance of payment. The primary goal should b the creation of a full calendar that attributes to the agricultural sector. The instance makes it easy to for more people in the rural areas not to migrate. The step is also useful in the distribution of income from the places that have oil to the places that have fertile soils. The government should also venture in the level of technology that affects the agricultural sector. The aspect of research is thus crucial in the quest to build a healthy agricultural sector. In conclusion, the Saudi government needs to empower the population in order to create an alternative means of earning revenue. The instance is through the provision of funds. The fiscal and monetary policies are very useful in the provision of capital that acts as savings and later graduates into investment. The agricultural sector is also a part of the most promising industry in the national protectionism of indigenous industries. Having the people to invest is enough reason to have a particular level of protectionism. The instance boosts the economy both in the short run as well as, in the long term. A memo for Bahrain The nation is at one of the challenging periods in her history. The nation is experiencing political unrest that tend to affect the economy in a negative perspective. The nation tends to be experiencing growing oppositions of the reigning government. The opposition is reducing the political stability that in turn tends to destabilize the economy. The following data is a provision of the variables that depict how the economy is running. variable Inflation rate 3.3% Real GDP growth rate 4.0% Unemployment rate 4.2% Level of employment Nominal GDP 25% Interest rate 2.95 (oldsworth, 2014) In the current year, the economic growth of the country is mostly dependent on the non-oil sector. The nation is particularly investing in the infrastructure that is to link all the other areas of the economy. However, the country is dependent on the GCC fund for development. The oil output in the country is to remain at a stagnant level. However, there are various oil projects that are the primary outlook of the country. The projects are also to boost the oil output in the country. The significant projects include the LNG terminal for imports, the venture to establish gas deposits, as well as the consequent upgrade of the existing pipeline. With a view of the regional; economy, the outlook in the non-oil business orientation is taking the priority. The instances are due to the increases in the oil output of the OPEC countries. The incremental oil tends to have a limiting factor in the case of creating a market price that is much better than the existing prices in the market. If Bahrain is to establish a surplus in the earnings that influence the oil sector, the only flexible aspect is creating an increase in the level of output (Thomas, 2014). The economy of Bahrain is set to drop in the GDP rate of growth to about two percent. The instance is due to the political unrest that can tend to tamper with the ongoing projects and investments. The only changes that can influence the level of growth are peaceful negotiations. However, the aspect, of acquiring peace in the nation, is very unlikely. The other instance is the reduction in the returns that Bahrain receives from the foreign markets. Although there is hope for a rebalance in the global market, the nation of Bahrain may not stand to benefit from the venture. The structural reforms, that the West is employing to boost the growth, should be a call for the Bahrain to align itself with the market. However, the over-reliance on oil means that there is no significant upsurge in the revenues that emanate from the existing oil output. The only shift that can tend to change the probable earnings is the discovery of natural gas in the nation. The gas may be a boost to the economy. On the contrary, the exploitation of gas deposits is a particular project that may take a longer period to venture. The instance is also costly to the government and is an area that may be a potential trigger to the opposition from the local persons. In conclusion, the economy of Bahrain is dependent on the outcome of the ongoing political protest. The Al Khalif family, on the other hand, is not ready to host peaceful talks with the opposition. The instance thus creates a level of instability that creates a suitable environment for all the foreign investors in the country to terminate their investments. The service sector is thus vulnerable to the changing phase that is affecting the nation. The fact that the oil output will remain flat is also alarming. The revenue that the state acquires from the oil will not be enough to cater for the intermittent political instabilities and still empower the economy. The country thus needs peace in order to reinvest in the economy and diversify the sources of revenue. The peace will also enable the nation to align with the rebalancing of the global economy in order to gain from the structural reforms that result. References Oldsworth, J. (2014). Bahrain: Central Bank Of Bahrain Succeeds Bahrain Monetary Agency. Trusts & Trustees 12.10 , 8-9. Roberts, B. M. (2014). Source Country Characteristics And The Inflow Of Foreign Direct Investment Into Saudi Arabia. World Economy 32.12 (2014), 1730-1746. The Political Economy Of Saudi Arabia. (2008). Choice Reviews Online 45.12, 45-6906-45- 6906. Thomas, A. (2014). Democratic States And Authoritarian Firewalls: America As A Black Knight In The Uprising In Bahrain. Contemporary Politics 20.3, 331-346. Read More