The budget deficit has been the highest in the history of Saudi Arabia, which is now the world’s largest oil exporter, but fell short of earlier projections, AFP reported.
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The fall in the price of oil has resulted in Saudi Arabia posting a 2015 budget deficit of 15 per cent of GDP, forcing spending cuts of 14 per cent in 2016, the government said overnight.
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Such subsidies are a highly sensitive issue in Saudi Arabia, where residents have grown accustomed to low utility and fuel costs. 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. Brent crude, the global oil-price benchmark, has lost 35 percent of its value since the start of the year and is now hovering at around $37 a barrel.
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The Saudi government, which will earn just under 80 per cent of its receipts from the sale of hydrocarbons this year, needs the oil price to be closer to $105 per barrel in order to avoid spending more than it earns, Deutsche Bank estimates. It has cut its spending target to 840 billion riyals; its target in 2015 was 860 billion riyals (but it overran this by 13 percent to 975 billion).
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The country hopes to boost revenue by introducing a previously-approved VAT tax and by adding fees to “harmful goods” like tobacco and soft drinks. The IMF said the kingdom needs to sell oil at around $106 a barrel to balance its budget.
The dive 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 U.S. shale producers, out of the market.
The reality check has seen the domestic oil price rise from 0.60 riyal to 0.98 riyal a litre (36¢), which is still around a quarter the price paid at the bowser by most Australian motorists. Actual revenue in 2015 was 608 billion riyals, compared to a forecast of 715 billion at the beginning of the year.
For years, Riyadh has been trying to diversify its economy away from a heavy reliance on oil revenue.
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Spending on military and security projects reached 20bn riyals in 2015, Saudi Arabia said, following its intervention in Yemen as well as action against militant group Islamic State.
