It immediately rolled out the first batch of revisions after the budget announcement, raising the prices of water and electricity supplied to households and the cost of gasoline, ethane and gas.
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“Our economy has the potential to meet challenges”, King Salman said in a speech, adding the 2016 budget launched a phase in which his kingdom would diversify its revenues.
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John Kilduff, founding partner at Again Capital, said the policy implies that Riyadh expects low oil prices to persist.
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Because of the severe drop in oil prices, revenue is down by 23% from the previous year.
WTI for February delivery was at US$36.77 a barrel, down 4 cents, on the New York Mercantile Exchange at 11:41 am in Seoul.
The kingdom, the world’s largest oil exporter, is projecting spending next year at 840 billion riyals ($224 billion), the statement said.
The country announced Monday a Riyal 513 billion budget for 2016, down from $229 billion in 2015.
In the first budget under King Salman, revenues this year totalled 608 billion riyals ($162 billion), down 15 per cent from the original target of 715 billion riyals, as prices for oil, on which the economy depends, fell further than expected.
Brent crude prices have plunged more than 35 percent over the past year, straining the public finances of producers from Venezuela to Iraq.
Prices then attempted to rally but tanked Monday on downbeat Chinese and Japanese data, alongside a Saudi budget plan that suggested the petroleum-exporting giant was planning for oil prices to stay low.
“This budget also comes amid challenging worldwide and regional economic and financial conditions, namely a global economic slowdown in growth”, it said.
Reduced oil revenues are eating into defence budgets in the Gulf region, the world’s fastest-growing arms market.
The kingdom has announced on Monday, Dec. 28, 2015 a projected budget deficit in 2016 of $87 billion (327 billion riyals), as lower oil prices cut into the government’s main source of revenue.
“The Saudi budget… reinforced the “lower for longer” sentiment in that market”, said analyst Augustin Eden at traders Accendo Markets, in reference to OPEC’s Saudi-backed policy of pushing oil prices lower to hurt non-OPEC producers. Fuel prices will still be low by global standards. “We realize prices are variable, and we have the capability to fund our budget under different pricing scenarios”.
The kingdom has seen a sharp drop in revenues as oil prices have fallen by more than 60 percent since mid-2014 to below $40 a barrel.
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There are other ways the Saudis can make their oil industry more resilient, starting with getting fair value for their barrels, and making them more environmentally and socially acceptable.
