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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RIYADH, Saudi Arabia – Saudi Arabia on Monday said this year’s budget deficit amounted to $98 billion as lower oil prices cut into the government’s main source of revenue, prompting the kingdom to scale back spending for the coming year and to hike petrol prices.
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In the first budget under King Salman, the government said that its budget deficit had reached 15 per cent of gross domestic product as oil prices continued their downward spiral.
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The dive in oil prices 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 USA shale producers, out of the market. The International Monetary Fund had projected a deficit of $130bn.
The contribution of oil income to revenues dropped to just 73 percent in 2015, from an average of 90 percent in the past decade.
Saudi Arabia unveiled its budget for 2016 with a projected deficit of 326 billion riyals (87 billion dollars), as the oil-rich kingdom has been hard hit by low global commodity prices. Saudi Arabia normally overspends its budget projections by around 20 per cent.
Total oil revenues for Saudi Arabia for the year are expected to be 23 percent less than the previous fiscal year, the Finance Ministry said Monday.
In the budget statement, the finance ministry said it would change subsidies for water, electricity and petrol over the next five years.
The government also said it was hiking prices for fuels, water and electricity as well as gas feedstock used by industry, as part of politically sensitive subsidy reforms.
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On Monday, it raised the price for Octane 95 gasoline to 0.90 riyal a liter from 0.60 riyal a liter effective Tuesday. 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.
