GCC equities drop following news of Saudi’s budget deficit

The report stated that the kingdom’s current account experienced its first deficit since 1998 during the current year, which stood at Dollars 41.3 billion or 6.2 percent of GDP.

Saudi Arabia’s budget moves this week signaled the kingdom’s willingness to allow low oil prices to remain in place into 2016.

The revisions include raising the price of 91 octane gasoline to 0.75 riyals a litre from 0.45 riyals and increasing the price of 95 octane gasoline to 0.90 riyals from 0.60 riyals.

But the stock had already jumped 9.9 percent on Monday in anticipation of such a measure, and the company said on Tuesday that it foresaw little impact on its bottom line as higher electricity prices would be offset by higher fuel costs.

Energy, water and electricity prices will be “gradually” lifted over the next five years, with the aim of minimising the negative effects on “low and mid-income citizens and the competitiveness of the business sector”. The 2015 budget was based on a Brent price of $47 a barrel and the same level of crude exports, he said.

It spent 975 billion riyals in 2015, the equivalent of about $260 billion in United States currency.

The country’s budget deficit – the amount in which expenditures exceed revenue – for 2015 hit a huge $98 billion (£65.7 billion).

The dive is largely due to Saudi Arabia’s own policies and those of other OPEC nations, who are refusing to cut oil production as they seek to drive less-competitive players, including United States shale producers, out of the market.

The country hopes to boost revenue by introducing a previously-approved VAT tax and by adding fees to “harmful goods” like tobacco and soft drinks. Projections show an $87 billion deficit for next year. In 2015, wages, salaries, allowances and the like exceeded 50 percent of the approved budget expenses set at the beginning of the year. Typically, the country spends more than it budgets for during each fiscal year.

Jadwa Investment forecast the Saudi economy would grow by just 1.9 percent next year, down from 3.3 percent this year and 3.5 percent in 2014.

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.