Saudi Arabia Budget Deficit Swells On Oil Price Fall

King Salman of Saudi (middle, front row) attends a Shura council meeting in Riyadh.

Saudi Arabia on Monday unveiled a SR840 billion budget, launching a phase in which the Kingdom hopes to further diversify its revenues in an era of low oil prices.

Petrol prices in the kingdom were to rise by more than 5% on some products from Tuesday, authorities said, after the world’s largest crude exporter said it had posted a deficit of US$98 billion (RM420.7 billion) in 2015.

The kingdom and its Gulf partners, all key members of the influential Organization of the Petroleum Exporting Countries, had opposed calls by poorer OPEC members to slash the group’s high production levels in order to ease a supply glut and reduce prices.

The price of oil has fallen by more than 45 per cent from the average of 2014.

Saudi revenues have fallen to their lowest since 2009 when the global financial crisis struck.

Revenues next year are forecast at SR514 billion, down from SR608 billion in 2015, when oil revenues accounted for 73 percent of the total.

The Saudi government has been digging into its large foreign reserves, built up during years of higher oil prices.

Saudi Arabia revealed other steps to fix its finances, including implementing a budget ceiling, reviewing public spending on projects and training 3,500 workers to improve the government’s accounting practices.

The government said expenditure reached 975 billion riyals (US$260 billion) in 2015, 13 per cent above its target.

Also, the cabinet has said that the hike in price in inline with worldwide energy prices.

The Saudi’s cut but it’s not what you think.

Still, Saudi Arabia’s public debt has more than tripled between last year and this year.

Prices will also rise for other fuels including natural gas, diesel and kerosene and for heavily subsidised electricity and water, but details were not immediately available.

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.

The London-based research consultancy Capital Economics said in a report issued this month that the Saudi budget takes on additional prominence because it is the first under the new monarch.

The majority of the increase in overall spending was on salaries to Saudi civil and military employees.

Saudi Arabia is counting the cost of a policy of allowing the oil price to drop as it seeks to drive less competitive producers such as United States shale oil fields out of business.