Saudi Arabia has raised domestic energy prices by as much as 40 percent after the world’s leading oil producer announced a record $98bn budget deficit on Monday citing rock-bottom global petroleum prices.
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Saudi Arabia, now grappling with the impact of low oil prices, announced a 2016 budget comprising spending cuts, subsidy overhauls, and taxation, in order to meet its financial targets. Domestically, Saudi Arabia’s budget deficit in 2015 was about 367 billion riyals.
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According to Saudi-owned broadcaster Al Arabiya, almost three-quarters of the country’s revenues in 2015 came from oil.
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Saudi Arabia’s official Saudi Press Agency on Monday reported that Riyadh has made a decision to raise gasoline prices by more than 50 percent for some products from Tuesday as it cuts a range of subsidies.
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.
The contribution of oil income to revenues dropped to just 73 percent in 2015, from an average of 90 percent in the past decade.
It is the largest member of the OPEC oil-producing cartel and has refused to cut output, which has forced companies in other countries to halt projects and lay off staff.
The Finance Ministry said it adopted a budget for next year that takes into account the weak crude oil market.
Separately, nonoil revenues increased by 29 percent to SR163 billion.
The government said it projects expenditures of $224 billion (840 billion riyals) in 2016, roughly $5 billion (20 billion riyals) less than what the government projected in 2015.
Changes to VAT and an increase in taxes on soft drinks and tobacco are also planned. A quarter of that will be allocated to military and security purposes.
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. The economy was forecast to grow by 3.35 per cent this year.
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The November data showed Saudi Arabia slowing its sales of foreign securities; the central bank’s holdings of these dropped 0.5 per cent from the previous month to $425 billion.
