Journal of Advances in Economics and Finance

Download PDF (742.5 KB) PP. 105 - 119 Pub. Date: November 1, 2018

DOI: 10.22606/jaef.2018.34001

• Mona El Shazly^*
  Division of Business, Mathematics and Science, Columbia College, Columbia S.C., United States

The dual effect of weakening oil prices coupled with rising levels of government expenditures have translated into significant budget deficits for Saudi Arabia. Between 2014- 16, a fiscal balance surplus of SAR180 billion turned into SAR 366 billion deficit. This abrupt swing served as a “crude awakening “to the Saudi government pushing for the implementation of sweeping reforms. This research advocates adding to these initiatives an exchange rate system that is jointly pegged to oil and the U.S. dollar, allowing the SAR to be devalued when oil prices decline. The weights of the joint peg are determined and optimized by designing a hybrid model that combines artificial neural networks with a genetic training algorithm. In so doing, petro dollar revenues would be secured while domestic expenditures denominated in a devalued SAR will cut domestic expenditures providing the needed tail wind to balance the budget.

Saudi Arabia, oil price, currency peg, artificial neural networks

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