It is not immune to the impact of persistently low prices. Total defence spending in the Gulf was down 6 per cent on the previous year, but the overall Saudi fiscal deficit, estimated at 367bn riyals (£64bn), gives particular cause for concern.
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Private analysts said markets could react positively to Monday’s budget announcement because the 2015 deficit was lower than the 400-450 billion riyals which many investors had feared.
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Oil prices have plunged from a five-year high of $125 a barrel in March 2012 to just $37.18 now.
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The dive in oil prices is largely due to Saudi Arabia’s own policies and those of other OPEC nations, who are refusing to cut oil production as they seek to drive less-competitive players, including USA shale producers, out of the market.
The kingdom has seen a sharp drop in revenues as oil prices have fallen by more than 60 percent since mid-2014 to below $40 a barrel. The 2016 budget plan aims to cut that to SR326 billion.
Saudi Arabia also said it spent more than expected on social security benefits and salaries for government workers and military members.
The ministry did not disclose any oil price range used to determine its 2016 budget plans.
Saudi Arabia announced plans on Monday to reduce its state budget deficit cutting its spending cuts and introducing plans to raise revenues from sources other than oil.
Coinciding with that drop, non-oil revenues rose by nearly $10 billion from 2014.
Saudi Arabia, along with Iraq, has continued to jack up oil production despite low prices. That’s about 16 percent of gross domestic product, according to the National Bank of Abu Dhabi, but below the 20 percent forecast by the International Monetary Fund. For 2016, the government expects the deficit to narrow to 326 billion riyals.
The 2016 budget projects revenues at $137 billion, the lowest in six years, and spending at $224 billion, slightly below 2015 projections of $229 billion. “I think it’s a positive signal”.
“This is the beginning of the end of the era of free money”, said Mr Ghanem Nuseibeh, founder of London-based consulting firm Cornerstone Global Associates. The budget is also being heavily scrutinized as it was prepared under the guidance of a newly-formed Council of Economic and Development Affairs, which is headed by the king’s 30-year-old son, Deputy Crown Prince and Defence Minister Mohammed bin Salman.
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Batrawy reported from Dubai, United Arab Emirates.
