Saudi Arabia posts $98B deficit amid low oil prices

The International Monetary Fund (IMF) said that if Saudi Arabia raises its fuel prices, the country could save Dollars 17 billion annually.

Diesel, electricity and water prices will also increase.

The kingdom reduced energy subsidies and intends to cut spending in 2016 to 840 billion riyals ($224 billion) from 975 billion riyals this year.

Russian Energy Minister Alexander Novak said in a television interview Monday it was Saudi Arabia that was to blame for the collapse in crude oil prices.

Meanwhile, a statement posted on Saudi Finance Ministry’s website on Tuesday said the country will be in for a budget deficit of $87 billion next year, which will be its third annual shortfall in a row. The kingdom believes it can withstand low oil prices for longer than its United States competitors, many of which are small, heavily-indebted firms.

Revenues next year are forecast at 514 billion riyals, down from 608 billion riyals in 2015, when oil revenues accounted for 73 per cent of the total.

As much as 85 percent of the kingdom’s income comes from oil revenues, according to the November manifesto, which has created a form of “anaesthesia” for citizens with low-grade jobs in Saudi’s bureaucracy, the advisers reportedly wrote.

A 2016 budget plan released by the finance ministry on Monday allocated SR213 billion to the military and security services, the largest single allocation.

Saudi Arabia also plans to introduce VAT in coordination with other countries in the region, and raise taxes on soft drinks and tobacco. Previous year the deficit was $38.6 billion.

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.

The ministry also said nominal gross domestic product for 2015 is estimated to drop 13.35 percent to $653 billion.

The ongoing low oil-price environment points furiously towards a rough 2016 for US producers. The budget is the first under King Salman, who ascended to the throne in January.

Riyadh maintained high spending this year, and launched a military intervention against Iran-backed rebels in Yemen, by tapping into the huge fiscal reserves it accumulated when oil prices were high.

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.