Saudi Arabia sees $138-bn budget deficit for 2015 as oil plummets

Saudi Arabia is to consider major changes to its high spending, low tax regime after the plunge in world oil prices saw it post a record budget deficit of $98bn (£66bn).

Revenues next year are forecast at 514 billion riyals, down from revenues of 608 billion riyals in 2015.

But now policymakers have announced plans to cut the deficit to £58billion ($87bn) next year with the biggest shake-up of economic policy in the world’s top crude exporter for over a decade. The International Monetary Fund had projected a deficit of $130bn.

Budgetary pressure has already forced Saudi Arabia to review the prices of heavily-subsidized electricity and fuel in the country in what has been seen as part of Riyadh’s new measures to cope with low oil prices.

“The budget for the next fiscal year 1437/1438 is adopted in light of very low oil prices, as average rates for 2015 declined by more than 45 percent from the average of 2014 and continued to decline into 11-year record low in the last few weeks”.

Saudi Arabia’s deficit hit $98 billion this month because of low oil prices – which make up almost all of its government revenues.

Saudi Arabia got 73 per cent of 2015 revenue from oil.

Prices on fuel products were raised by up to 80 percent as of midnight, including a 50 percent jump in the price of the most commonly sold petrol to 0.90 riyals (0.24) per litre.

In the first budget under King Salman, the kingdom said revenues reached 608bn riyals (£108.7bn; $162bn), down 15 per cent on official expectations.

Saudi Arabia’s determination to retain market share at the expense of state-funding is posing problems beyond the oil industry.

In one of the strongest signals that the kingdom will stay the course despite the impact on its finances, Saudi Aramco Oil Company chairman Khalid al-Falih said it could outlast other oil producers.

Kuwait lifted subsidies on diesel and kerosene at the start of 2015 and plans other cuts early next year, especially on electricity and petrol. Saudi Arabia normally overspends its budget projections by around 20 percent.

Riyadh has not released a report on the true costs of the war, but the finance ministry has already set aside some $57 billion – a quarter of the nation’s budget – for defense spending next year.

The kingdom withdrew more than $80bn this year from its reserves, which stood at $732bn at the end of 2014, and issued bonds worth about $20bn.