After years of spending its massive oil wealth to bolster the local economy and provide subsidized energy and other utilities to its 30 million people, a steep decline in oil prices has forced the kingdom to reassess these plans.
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In a speech, Saudi Arabia’s King Salman bin Abdulaziz Al Saud, said: “Our economy has the potential to meet challenges”.
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This is not the first time for Saudi Arabia and other oil-producing Gulf countries to run budget deficits. This year’s original budget plan envisaged 715 billion riyals of revenues.
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Revenues were estimated to be at 608 billion riyals ($162 billion), well below projections and the 2014 income, while spending came in at 975 billion riyals ($260 billion), ministry officials announced at a press conference in Riyadh.
Prices tanked more than three per cent on Monday, effectively dousing a rally that followed after Brent crude tumbled to 11-year lows last week.
The UK, long the preferred home of Saudi royal property investment, has seen a spate of sales over the past few years as the falling price oil has brought the days of the high-spending Middle Eastern spending to an end.
The country government also announced its budget today, projecting spending of Dollars 224 billion (840 billion riyals) in 2016 versus USD 137 billion (513 billion riyals) in revenue. “It’s supported by the government, but now they are entering too many wars and need more money”, the 22-year-old medical student said.
The success or failure of the budget plan will be key to maintaining the confidence of financial markets in the capital Riyadh. The finance ministry also plans to establish a unit responsible for public debt management in order to improve the Kingdom’s ability to borrow both domestically and internationally “thus contributing to the market for sukuk and local bonds” said the statement released by the Ministry of Finance.
Starting Tuesday, petrol prices have been increased by more than 50 per cent for some products as the kingdom cuts a wider range of subsidies after posting a record budget deficit. Once the price is hiked, petrol will sell for 0.90 Riyals (Rs. 15.92) and 0.75 Riyals (Rs. 13.26) respectively. Revenues are also expected to fall to around SAR 517bn next year as oil prices have plunged from a five-year high of $125 a barrel in March 2012 to just $37.18 in December.
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.
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It unveiled economic and fiscal reforms to make the budget more sustainable, including a programme to contain spending growth, especially for wages and benefits which accounted for half of the 2015 budget.
