Saudi 2016 growth to dive as debt rises, reserves drop

A year ago, Saudi Prince Alwaleed Bin Talal Al Saud said: “If we reduce our production some other countries will fill that gap”.

Most of this was, however, shipped overseas by their JV partners, leaving the country a net importer, with an average of 744,784 mt of gasoline imported each month this year, according to Joint Oil Data Initiative data.

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

Analysts said they saw positives in the budget announcement; the 2015 deficit of 367 billion riyals ($97.9 billion) was lower than the 400-450 billion riyals which many investors had feared, and the planned cut in 2016 spending was smaller. Revenue from oil sales in 2015 will drop 23 percent to 444.5 billion riyals, according to the finance ministry statement. Crude oil prices started moving lower in mid-2014 as USA crude oil production skewed markets toward the supply side.

Saudi Arabia is arguably to blame for hurting its own economy because it is a “swing producer”, meaning it produces so much oil that it can shift prices depending on how much of the product it releases to the market.

Mr Naimi’s pledge came just days after Saudi Arabia posted its biggest ever budget deficit, of pounds 66bn, after state revenues collapsed because of the fall in the price of oil.

But Opec’s members have been divided over the strategy.

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 2015 revenue reached 608 billion riyals, below the 715 billion riyal target. Oil revenues make up three-quarters of the government’s revenues.

The budget is the first under King Salman, who ascended to the throne in January, and an economic council dominated by son, Deputy Crown Prince Mohammed bin Salman.

“Over the a year ago we have seen the down cycle in the oil markets have a significant impact on both supply and demand”, Falih said.

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