Saudi posts record deficit, cuts fuel subsidies

The budget included spending cuts and reforms to energy subsidies and eyed higher revenues from taxes and privatization to help cut this year’s deficit of $98 billion to $87 billion in 2016, despite the prospect of lower oil prices next year.

However, it is expected that Saudi Arabia will continue to reduce its dependence on oil in its budget for the coming year with a sharp drop in the price of oil.

Jadwa also noted that the oil price used to calculate Saudi Arabia’s oil income in 2016 will be set at Dollars 40.3 a barrel, down from USD 64.8 a barrel this year.

The budget “comes amid challenging worldwide and regional economic and financial conditions” including “very low oil prices”, the statement said. Income for 2015 was 15 percent lower than projections and 42 percent less than in 2014. Prices will also increase for water, electricity, diesel, and kerosene.

The finance ministry said it was planning a series of measures to contain spending, including a five-year programme to cut subsidies on electricity and fuel.

The Saudi government announced significant spending cuts, as well as plans to diversify the economy and generate revenue by sources other than oil in recent days.

More immediately, Riyadh has raised gasoline prices and hiked the price of methane to $1.25 per million British thermal units and ethane to $1.75, from 75 cents for both, hitting petrochemical producers hard.

But unlike Alberta, which is an oil-price taker, Saudi Arabia can change its reality by changing course. The 2015 budget was based on a Brent price of $47 a barrel and the same level of crude exports, he said. Instead of cutting oil production to drive prices up, Saudi Arabia has aggressively kept its production levels high in what analysts say is an attempt to keep its market share and stymie the reach of US shale producers in the global market.

In late October, the Standard & Poor’s credit rating agency downgraded the country’s sovereign debt rating to A+ from AA-, prompting a fierce response from the country’s finance ministry.

“We will satisfy the demand of our customers”.

Saudi Arabia is following what the UAE did, which became the first Gulf state to liberalise fuel prices earlier this year.

Prominent Saudis from various sections of society welcomed the national budget, describing the announcement as balanced and based on solid foundations supporting ongoing development projects.

Economy Minister Adel Fakeih said yesterday that 20 billion riyals of this year’s spending overshoot was due to increased military and security spending related to the military operation against Shiite Houthi rebels in Yemen.