The Kingdom of Saudi Arabia’s Ministry of Finance has outlined the country’s 2016 budget plans, revealing a plan to reduce spending next year due to low oil prices. However the International Monetary Fund thinks the deficit will be much higher at $130 billion, while some other projections estimated it to be above $100 billion.
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Saudi Arabia released a more tight-fisted budget for 2016, reflecting scaled-back revenue expectations and lower spending on subsidies because of sinking oil prices and its involvement in the war in neighbouring Yemen.
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Income for 2015 was 42% less than in 2014, after oil prices fell by more than 60% since mid-2014 to below US$40 a barrel.
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“The budget comes in light of lower oil prices and economic and financial challenges on regional and global levels…our economy, with the help of God, has what it takes to overcome the challenges”, King Salman said on state television, underlining the challenges facing the kingdom. Oil sales will make up about 70 percent of the country’s budget next year, according to Ashmore Group’s Sfakianakis.
Other countries may simply opt not to pass on savings from lower oil costs to citizens – as may be the case in Guyana, according to local media. But the stock had already jumped 9.9 percent on Monday in anticipation of such a measure, and the company said on Tuesday that it foresaw little impact on its bottom line as higher electricity prices would be offset by higher fuel costs.
Saudi Arabia, along with Iraq, has led the pumping frenzy.
“Government expenditure is a key driver of growth in Saudi Arabia, so a cut in spending will certainly feed through to domestic output and earnings”, Akber Khan, the director of asset management at Doha-based Al Rayan Investment, which manages about $900 million, said by telephone before Saudi Arabia announced its budget.
The majority of the increase in overall spending was on salaries to Saudi civil and military employees.
Saudi Arabia’s government debt has also risen sharply, after it issued 98 billion riyals worth of bonds to local markets earlier in the year.
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 Defense Minister Mohammed bin Salman.
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Saudi Arabia has so far withstood the cheap oil era by dipping into its massive reserves, but officials are looking for more sustainable sources of revenue, including raising petrol, electricity and water prices.
