Domestic fuels have been heavily subsidized, but Riyadh has been under pressure to bring its spending under control as its budget deficit in 2015 ballooned to Riyal 367 billion due to lower revenue from crude exports.
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For the third consecutive year, the kingdom said it will post a budget shortfall in 2016, projecting a deficit of $87 billion (327 billion riyals).
Brent crude oil prices are down roughly 36% from this time previous year and continue to hold beneath $40 per barrel – even pennies below West Texas Intermediate crude – Kallanish Energy calculates.
The report shows that total revenue for 2015 is estimated at SR 608 billion in FY 2015, with an estimated decline of 15 per cent compared to the budgeted revenues.
The 2015 deficit is the highest in the history of Saudi Arabia, which relies on oil for 90 per cent of public revenues, but was not as big as some expected.
Humbled by the slumping oil price, Saudi Arabia, long the world’s major oil producer, has been forced to take an axe to government spending by slashing a host of subsidies – including the price of oil. The foreign reserve assets of the Saudi central bank dropped more than $95 billion in the first 11 months of this year to $627.7 billion.
Prices will also increase for electricity, water, diesel and kerosene under the cuts decided by the council of ministers headed by King Salman, the official SPA news agency reported.
“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.
The Saudi-led policy is meant to cause a period of low prices that drives out producers thought to need high prices, such as the U.S. Eventually, analysts have said, supplies should recede, increasing OPEC’s share of the market and eventually causing prices to rebound. To cover the difference between its spending and revenue over the past year, Saudi Arabia has drawn its reserves down from $728 billion at the end of last year to around $640 billion.
Subsidies for water, electricity and petroleum products would be adjusted over five years, said the ministry.
Saudi Arabia is running a large budget deficit.
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Spending on military and security projects reached 20 billion riyals in 2015, Saudi Arabia said, following its intervention in Yemen as well as action against militant group Islamic State. Typically, the country spends more than it budgets for during each fiscal year.
