As we in the UK come to terms with the challenge presented by the steep fall in oil prices, we should maybe learn a lesson from the Middle Eastern state of Saudi Arabia, which has 90 per cent of its revenues coming from oil and recently unveiled its 2015 budget. This budget signalled the government’s intention to maintain its large public spending policy despite such a fall. Indeed, it will increase public spending by just under 1 per cent, building infrastructure and creating jobs while investing in key sectors such as health and education as it looks to diversify its oil-based economy.
While it acknowledges that its budget deficit will increase to $38.6 billion, this is unlikely to impact on the country as the IMF estimates that Saudi Arabia has about $750bn in foreign-exchange reserves built up over the years from oil sales.
There is clearly a lesson here for the UK in establishing an oil fund, allowing us to reap the rewards in the good times and maintaining spending when times are tougher.