Recent Cabinet changes have further the cemented Deputy Crown Prince Mohammed bin Salman’s control over economic decision-making. A royal decree issued in late October appointed market regulator Mohammed Al-Jadaan as the new finance minister. Jadaan, a close ally of the deputy crown prince, is expected to maintain the government’s tight fiscal stance, which has included and will continue with the overhaul of the public sector, expansion of the country’s bond market, and the privatization of Saudi Aramco.

In late November, OPEC agreed to cut oil supplies for the first time since the global financial crisis in 2009, as Saudi Arabia and other Persian Gulf producers accepted big reductions in their production quotas. The adjustments to quotas will be in effect for a period of six months beginning on January 1, with an option to extend the agreement until the end of 2017.

Under the plan, Saudi Arabia will cut its own production by 486,000 bpd, to 10.06 million bpd, in a major reversal of a policy that has focused on retaining market share, rather than bolstering prices. Saudi negotiators conditioned their participation on the agreement of non-OPEC producers to an additional 580,000 bpd of production cuts, which was achieved on December 9, with Russia accounting for more than one-half of the total reduction.

Officials in Riyadh are counting on a higher oil price to boost government revenues and ease the pressure to inflict additional fiscal austerity on the Saudi public. However, it remains to be seen whether the participants in the agreement fulfill their obligations to cut production, and any significant price rise would create an incentive for US shale producers to ramp up production, in all likelihood choking off an oil-market rally.

Saudi Arabia raised $17.5 billion in its debut international bond sale in October, which will help to stem the drawdown in foreign exchange reserves and put an end to speculation about a possible devaluation of the riyal. However, the funds generated by the bond sale will fall far short of covering next year’s fiscal deficit.

The 2017 budget plan announced at the end of December includes some modest spending increases, but the Finance Ministry projects a budget deficit equivalent to $52.7 billion (or about 8% of GDP), compared to this year’s estimated budget shortfall of more than 12% of GDP. Much will depend on the degree to which production cuts affect global oil prices. The government is aiming for a target of $70 per barrel (compared to a current price of about $55 per barrel), which would greatly enhance the government’s ability to proceed with its structural reform efforts without pushing the economy into recession. However, there is a great deal of disagreement as to the feasibility of the target.