Saudi Arabia posts $98B deficit, raises petrol prices

Saudi Arabia is arguably to blame for hurting its own economy because it produces so much oil, it has the ability to radically shift prices depending on how much it releases onto the market.

The kingdom has announced on Monday, Dec. 28, 2015 a projected budget deficit in 2016 of $87 billion (327 billion riyals), as lower oil prices cut into the government’s main source of revenue.

The kingdom and its Gulf partners, all key members of the influential Organization of the Petroleum Exporting Countries, had opposed calls by poorer OPEC members to slash the group’s high production levels in order to ease a supply glut and reduce prices. The 2016 budget plan aims to cut that to 326 billion riyals, reducing pressure on Riyadh to pay its bills by liquidating assets held overseas and issuing bonds.

“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.

Initial reports suggested the increase in petrol prices is imminent.

Whether he and other Saudis will remain philosophical if prices rise further, and other reforms that inconvenience citizens are enacted, and how Prince Mohammed responds to that, will determine the monarchy’s future.

The statement noted that the budget “comes amid challenging worldwide and regional economic and financial conditions” including “very low oil prices”.

The budget meet was attended by the council of ministers headed by Saudi King Salman Bin Abdulaziz.

The 2015 deficit is the highest in the history of Saudi Arabia, which relies on oil for 90 per cent of public revenues, but was not as big as some expected.

The ministry said oil income made up just 73 per cent of total revenues in 2015, way below its contribution in previous years.

The new budget, King Salman al-Saud’s first since taking the throne in January, includes a spending of almost $224 billion.

Saudi Arabia has now announced plans for spending cuts in its state budget.

Spending this year rose by 13% more than analysts forecast and topped $260 billion (£174 billion), mainly because of the country’s war efforts in Yemen and its role in helping to fight ISIS (also known as the Islamic State, Daesh, or ISIL) troops in neighbouring states. However, the government has also put aside $49 billion (183 billion riyals) in discretionary spending to use on infrastructure projects if oil prices improve. Promoting aviation as an economic growth engine could be effective, as Saudi Arabia wants to increase non-oil revenues.

Monica Malik, chief economist at Abu Dhabi Commercial Bank, said she believes “that the actual fall in expenditure will be sharper than implied in the budget”.