Confronting a drop in oil prices and mounting regional turmoil, Saudi Arabia reduced energy subsidies and allocated the biggest part of government spending in next year’s budget to defense and security.
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Government spending for the next year was expected at 840 billion riyals, according to data unveiled at a press conference Monday.
Saudi economic growth is set to slow further in 2016 after the OPEC heavyweight announced record deficits due to a slump in oil prices, an economic report said Wednesday.
It was the second deficit year in a row for Saudi Arabia and Riyadh is expected to announce another shortfall when it unveils its 2016 budget later on Monday. The decision comes on the heels of a dramatic drop in oil prices over the last 18 months that have hit its oil revenues hard.
The budget revealed that the kingdom spent $30 billion more in 2015 than it had initially planned, reaching $260 billion (975 billion riyals) in total expenditures largely because of financial handouts King Salman doled out to the public when he ascended the throne earlier this year. Falling by over 60%, a barrel of crude now sells for less than $50, and those figures have had a drastic impact on the Saudi Arabian economy, which relies on oil for roughly 90% of its revenue.
The Saudi government has been digging into its large foreign reserves, built up during years of higher oil prices. The average price of petrol in the oil rich kingdom is still 22 cents, in contrast with fellow OPEC member Nigeria, where the price is 44 cents.
Revenues next year are forecast at 514 billion riyals, down from 608 billion riyals in 2015.
“Our economy has the potential to meet challenges”, King Salman said in a speech, adding that the 2016 budget launched a phase in which his kingdom would diversify its revenues.
Prices will also rise for other fuels including natural gas, diesel and kerosene and for heavily subsidised electricity and water, but details were not immediately available. Projections show an $87 billion deficit for next year.
The International Monetary Fund warned in October that Riyadh would run out of money within five years if it did not tighten its belt.
Also to make up for the budget deficit, the Saudi government has already started withdrawing from its huge fiscal reserves while issuing bonds on the domestic market.
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The ministry also said nominal gross domestic product for 2015 is estimated to drop 13.35 percent to $653 billion.
