Saudi Arabia to raise its petrol prices by up to 40%

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. Prices will also increase for water, electricity, diesel, and kerosene.

Next year’s budget projects spending of 840 billion riyals, down from 975 billion riyals spent this year.

The kingdom’s finance ministry also said it was considering plans to raise charges on public services and apply value-added tax (VAT) in cooperation with other Gulf Arab nations.

Saudi Arabia has raised domestic energy prices, including fuel prices, state news agency SPA said on its Twitter account on Monday. Income for 2015 was 15% lower than the projections and 42% less than in 2014. The problem is that oil has now gone low enough that it is showing up in Saudi Arabia’s budget, and not in a good way.

Significant progress in economic diversification relies largely on policies put in place before the price shock, according to an International Monetary Fund study released in December 2014.

Prices tanked more than three per cent on Monday, effectively dousing a rally that followed after Brent crude tumbled to 11-year lows last week.

“The budget comes in light of lower oil prices and economic and financial challenges on regional and global levels…our economy, with the help of God, has what it takes to overcome the challenges”, King Salman said on state television, underlining the challenges facing the kingdom.

He said Saudi Arabia had increased its military and security spending in 2015 by about 20 billion riyals because of the conflict.

“It may also issue some bonds to borrow from the market depending which is better for it”, Hashem said from the Saudi city of Jeddah.

Saudi Arabia is raising domestic gasoline prices by more than 50 percent from Tuesday in response to its budget deficit of nearly $98 billion. As is typical for the published version of the budget, it did not include a projected oil price.

With the power in its hands, and a clearly ailing economy, Saudi Arabia chose to cut expenses, as opposed to slashing oil production, which would have potentially boosted energy prices, as well as future revenues.

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.