Abstract
The ‘90 percent solution’ meant government spending not financed by local taxes was matched by foreign exchange outflows from Saudi Arabian Monetary Agency (SAMA) reserves. Diversification of the economy was slow. Non-oil revenues remained small and budget deficits caused by low oil prices meant declining foreign reserves. SAMA started managing its bond holdings actively. Holding non-dollar currencies and equities yielded big investment gains. The foreign advisers mostly left. The government issued riyal debt, voluntarily bought by banks and public funds to finance its budget deficits. A credible dollar currency peg was established but the economy stagnated as it remained dependent on oil, and diversification plans achieved little. The invasion of Kuwait by Iraq produced a crisis of confidence but SAMA coordinated Gulf states’ action to support the Kuwaiti dinar.
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Notes
- 1.
Lawrence Freeman and Efraim Karsh, The Gulf Conflict 1990–91: Diplomacy and War in the New World Order. (London: Faber & Faber, 1994): 42–63. This is a good near-contemporary account of the Khafji battle and the Kuwait conflict.
- 2.
In 2016, a debt management office was set up inside the Finance Ministry.
- 3.
Technically, an earlier tax was reimposed.
- 4.
Banafe, Saudi Arabian Financial Markets, 187–201. This is the most comprehensive account of the Kuwait episode from a financial point of view.
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Banafe, A., Macleod, R. (2017). Declining Foreign Exchange Reserves and Iraq’s Invasion of Kuwait, 1983–1993. In: The Saudi Arabian Monetary Agency, 1952-2016. Financial Institutions, Reforms, and Policies in Muslim Countries. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-55218-7_5
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