Saudi Arabia posts record $98 billion budget deficit for 2015

Saudi Arabia may be forced to devalue its currency after announcing a harsh austerity budget with spending cuts, privatisations, and hikes in taxes and prices of fuel, gas feedstock and electricity, which combined to add further pressure on global crude oil prices.

Oil exporting countries that will be most affected are Kuwait, Qatar, Iraq, Oman, Libya and Saudi Arabia, the International Monetary Fund said, because most oil exporters need oil prices to be above $57 per barrel in order to cover government spending.

Riyadh maintained high spending this year and launched an expensive military intervention in Yemen by tapping into the huge fiscal reserves it accumulated when oil prices were high.

The country’s earnings in 2016 are forecast at $137 billion, $25 billion down from 2015. That’s less than the $56 per barrel priced into the projected 2015 budget.

Petrol (LSE: 0IMR.L – news) prices in the kingdom have been the cheapest in the Gulf and some of the lowest in the world.

The budget is also being heavily scrutinized as it was prepared under the guidance of a newly-formed Council of Economic and Development Affairs, which is headed by the king’s 30-year-old son, Deputy Crown Prince and Defence Minister Mohammed bin Salman.

The Saudis plan to shrink the deficit to 326 billion riyals by slashing subsidies for petrol, electricity, water, diesel and kerosene, the budget papers revealed.

Saudi Aramco’s Chairman Khalid Al-Falih said he is confident that local industries including the Saudi petrochemical sector would adjust to the rise in domestic energy prices and remain competitive.

The price for high grade unleaded petrol now sells for 0.60 Riyals (Rs. 10.61) and the lower grade petrol sells for 0.45 Riyals (Rs. 7.96).

To help make up the shortfall, the country’s finance ministry said it would cut subsidies for fuel.

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.

Saudi Arabia is even thinking about cutting the massive discount it gives its citizens on gasoline.

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

Saudi Arabia’s stock market was generally little changed early on Monday as traders cautiously awaited the release of the kingdom’s 2016 state budget, while Egypt recouped some of previous session’s losses.