Saudi Arabia has 2015 deficit; 2016 spending cut due to low oil

Saudi Arabia announced a record budget deficit and cuts to fuel and utility subsidies on Monday as the oil powerhouse suffers from a drastic fall in global crude prices. Government revenues came in at $162 billion, 15% lower than forecasts, while expenses were almost $260 billion, exceeding estimates by 13%.

Earlier this year, the International Monetary Fund released a report detailing the impace of low oil prices on the world’s largest crude oil producers.

It was the second deficit year in a row for Saudi Arabia and Riyadh is expected to announce another shortfall when it unveils its 2016 budget later on Monday.

Oil accounts for 75% of Saudi Arabia’s revenue, and when crude prices were sky high, the country enjoyed frequent budget surpluses.

Oil prices have fallen by more than half ever since that November 2014 decision, with Brent crude, the worldwide benchmark, trading at about $37 a barrel on Wednesday in London, its lowest level since the 2008-09 financial crisis. Oil revenues are expected to reach SR 444.5 billion, representing 73 per cent of the total revenue, 23 per cent less than oil revenue during the previous fiscal year (2014).

“The kingdom reduced its dependency rate on oil revenues in 2015 and it will do the same in 2016 to overcome any negative impact from the decline in oil prices”, Sfakianakis said. The announcement showed soaring budget deficits that reached 367 billion riyals in 2015.

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.

For next year, the government plans to cut spending to 840 billion riyals. “The result of the program will be to increase energy efficiency, national economy, create many jobs”, he said. In the past, Saudi Arabia has cut oil production to force prices to increase. Oil sales will make up about 70 per cent of the country’s budget next year, said John Sfakianakis, a Riyadh- based economist at Ashmore Group Plc and a former adviser to the government.

That would boost non-oil income to around 40 per cent of public revenues, a new landmark for the kingdom.

A quarter of next year’s spending, or $57 billion, has been allocated for defence and security expenditures, the ministry said.

But he said Saudi Arabia has huge foreign reserves above $700bn that it can use to finance the gap in the budget.