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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Jadwa estimated the oil price used to calculate oil income in 2016 at $40.3 a barrel, down from $64.8 a barrel this year.
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“The budget comes in light of lower oil prices and economic and financial challenges on regional and worldwide levels…our economy, with the help of God, has what it takes to overcome the challenges”, King Salman said on state television, underlining the challenges facing the kingdom.
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He said: “I think we are returning to a very solid and consistent team, which is important”. But I am not happy because we came here to try to win the game.
Revenues next year are forecast at 514 billion riyals, down from 608 billion riyals in 2015, when oil revenues accounted for 73 percent of the total.
Diesel, electricity and water prices will also increase.
“The kingdom reduced its dependency rate on oil revenues in 2015 and it will do the same in 2016 to overcome any negative impact from the decline in oil prices”, Sfakianakis said.
“Government expenditure is a key driver of growth in Saudi Arabia, so a cut in spending will certainly feed through to domestic output and earnings”, Akber Khan, the director of asset management at Doha-based Al Rayan Investment, which manages about $900 million, said by telephone before Saudi Arabia announced its budget.
Private analysts said markets could react positively to Monday’s budget announcement because the 2015 deficit was lower than the 400-450 billion riyals which many investors had feared.
Oil prices have plunged from a five-year high of $125 a barrel in March 2012 to just $37.18 now. The finance ministry said it would review government projects to make them more efficient and ensure they were necessary and affordable.
Two days ago, in an in-depth report on long-term energy trends, OPEC, the 13-member cartel of oil producers, said a barrel of oil would not be worth $100 until after 2040.
Saudi Arabia announced its first budget under King Salman, who ascended to the throne in January, amid plans to gradually cut subsidies and sell stakes in government entities to counter the drop in oil revenue.
He told Bloomberg that Saudi Arabia isn’t happy with low prices, “but it’s something you have to face head on without hesitation”. INTRACTABLE PROBLEMS Reducing dependence on oil revenue has proved an intractable problem for generations of Saudi leaders, whose periodic efforts to reform the economy have traditionally faltered as soon as public feeling turned against change or crude prices rose.
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“The oil sector will be a drag especially with no expected increase in crude production”, NCB said in a note. It was unclear how much the intervention in Yemen was costing as Saudi Arabia has not previously released figures on defence spending.
