Saudi Arabia To Increase Fuel Prices By 50 Percent

A cut in subsidies risks a backlash in the kingdom as its citizens are accustomed to cheap energy and other utilities.

Another Twitter user, writing under a pseudonym, blamed “wrong economic policies for the record budget deficit”.

The government has now announced a series of measures to counter the effects of 2015 budget deficit.

Saudi Arabia posted a $98 billion budget deficit this year as oil, its biggest source of income, sank to the lowest level in 11 years.

Next year’s budget projects spending of 840 billion riyals, down from 975 billion spent this year. Those bonuses amounted to 88 billion riyals. However, the government has also put aside $49 billion (183 billion riyals) in discretionary spending to use on infrastructure projects if oil prices improve.

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

The price of higher-grade unleaded petrol will rise to 0.90 riyals ($0.24) per litre from 0.60 riyals, a hike of 50 per cent. Lower-grade petrol will hike to 0.75 riyals from 0.45 riyals per litre, up two thirds.

The UK, long the preferred home of Saudi royal property investment, has seen a spate of sales over the past few years as the falling price oil has brought the days of the high-spending Middle Eastern spending to an end.

The Finance Ministry said it adopted a budget for next year that takes into account the weak crude oil market.

Meanwhile, yesterday oil prices dropped again.

A Saudi man walks past a pump at a petrol station Monday in the Red Sea city of Jeddah.

However, the increase wasn’t surprising to analysts, who said officials have been hinting at this possibility for months.

“We have to rationalise unnecessary spending…”

In a clear departure from its decades-old generous welfare system, Riyadh announced prices would rise on fuel, electricity, water and even plane tickets and cigarettes.

Saudi Arabia is following in the footsteps of the neighbouring United Arab Emirates, which became the first Gulf state to liberalise fuel prices earlier this year. In 2016, budget deficit is expected to be financed through incomes from foreign assets and borrowing from worldwide and local markets.

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.

Non-oil revenues rose by 29 percent this year to $43.5 billion, contributing 27 percent to public revenues. The 2015 budget was based on Brent price of US$47 a barrel and the same level of crude exports. “We realize prices are variable, and we have the capability to fund our budget under different pricing scenarios”.

But King Salman said that the country had the “potential and capability” to withstand the hard era.