Saudi Arabia unveils SR840 billion budget

Riyadh, which is the world’s top oil exporter, announced on Monday a record budget deficit of Dollars 98 billion in 2015, while projecting a budgetary shortfall of USD 87 billion next year.

Domestic fuels have been heavily subsidized, but Riyadh has been under pressure to bring its spending under control as its budget deficit in 2015 ballooned to Riyal 367 billion due to lower revenue from crude exports. Government officials aim to cut that deficit to 326 billion riyals in 2016.

The Saudi fiscal budget is being watched closely by investors to see how the kingdom plans to consolidate after years of heavy spending when oil prices were more than double what they are now.

In order to address the situation, the Gulf kingdom has set the price of 95 octane gasoline at 0.90 riyals ($0.24) per litre up from 0.60 riyals per litre – a hike of 40 percent.

The situation is so bad that the Saudi government said petrol prices, which is usually very cheap in Saudi Arabia because of the glut of oil it produces, may increase by 50% and diesel, electricity and water prices will also increase.

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

Authorities announced other measures aimed at reducing Saudi Arabia’s reliance on oil revenues by diversifying the economy, including by increasing charges on public services.

Oil prices fell Monday following downcast economic data from China and Japan and a Saudi budget plan that suggested the petroleum-exporting giant is planning for oil prices to stay low. The decision comes on the heels of a dramatic drop in oil prices over the last 18 months that have hit its oil revenues hard. That’s less than the $56 per barrel priced into the projected 2015 budget.

Saudi Aramco’s Chairman Khalid Al-Falih said he is confident that local industries, including the Saudi petrochemical sector, would adjust to the rise in domestic energy prices and remain competitive.

Government spending reached SAR 975bn in 2015, 15 per cent more than expected, further squeezing public finances. Saudi Arabia led a shift in OPEC policy previous year by rejecting calls to reduce production to support prices, choosing instead to defend market share.

Saudi Arabia also said it spent more than expected on social security benefits and salaries for government workers and military members.

This is the first budget under King Salman, who ascended to the throne in January, and for an economic council dominated by his increasingly powerful son, Deputy Crown Prince Mohammed Salman. Revenue is forecast to decline to 514 billion riyals from 608 billion riyals.