Saudi Arabia posts record budget deficit

For the third consecutive year, the kingdom said it will post a budget shortfall in 2016, projecting a deficit of $87 billion (327 billion riyals).

Saudi Arabia is the largest member of the Organisation of Petroleum Exporting Countries, which earlier this month failed to agree any output cuts despite oil prices dropping to near 11-year lows.

Revenues in 2015 dropped to $162 billion, the lowest since the global financial crisis in 2009, due to a massive $123 billion fall in oil revenues.

Revenues next year are forecast at 514 billion riyals, down from revenues of 608 billion riyals in 2015, Saudi Arabia’s currency has been pegged to the dollar since 1986 and it had afforded the country a certain amount of credibility and stability.

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).

Saudi Arabia has so far withstood the cheap oil era by dipping into its massive reserves, but officials are looking for more sustainable sources of revenue, including raising petrol, electricity and water prices. Non-oil revenue climbed 29 per cent to 163.5 billion riyals. Russian Energy Minister Alexander Novak said this week that Saudi Arabia has actually increased production by 1.5 million barrels per day, a level he blamed for instability in the crude oil market.

The kingdom reduced energy subsidies and intends to cut spending in 2016 to 840 billion riyals ($224 billion) from 975 billion riyals this year.

However, Saudi Electricity Co (STC) and National Gas and Industrialization Co surged 9.9 and 6.8 percent respectively.

There is to also be a value-added tax to raise taxes on soft drinks and tobacco. A quarter of that will be allocated to military and security purposes.

It was unclear how much the intervention in Yemen was costing as Saudi Arabia has not previously released figures on defence spending.

To finance the budget, the Saudi government withdrew from its huge fiscal reserves and issued bonds on the domestic market.

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