Saudi Arabia on Monday said this year’s budget deficit amounted to $135 billion (367 billion riyals) as lower oil prices cut into the government’s main source of revenue, prompting the kingdom to scale back spending for the coming year and hike up petrol prices.
A royal decree announced that petrol prices would go up by 50 per cent effective Tuesday. Even with that jump, Saudis will pay just 33 cents (0.90 riyals) for a litre of 95 octane gasoline, less than a dollar per gallon. The Saudi-based Jadwa Investment estimates the government spends around $84 billion on energy subsidies annually, almost $15 billion of that on gasoline alone.
For two consecutive years the kingdom has posted a deficit, and it is planning for another budget shortfall next year, projected at $120 billion (326 billion riyals).
The deficits represent a sharp turnaround from just a few years ago, before oil prices tumbled in mid-2014. Instead of cutting oil production to drive prices up, Saudi Arabia has aggressively kept its production levels high in what analysts say is an attempt to keep its market share and stymie the reach of U.S. shale producers in the global market.
Saudi King Salman bin Abdulaziz heading the Council of Ministers meeting.
The Saudi government has been digging into its large foreign reserves, built up during years of higher oil prices. To cover the difference between its spending and revenue over the past year, Saudi Arabia has drawn its reserves down from $1 trillion at the end of last year to around $880 billion.
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. Benchmark U.S. crude was trading Monday at $US37.46 per barrel on the New York Mercantile Exchange.
One area where the government is not cutting back is defence and security, where it allocated $78 billion (213 billion riyals) for 2016. Saudi Arabia has been leading a coalition against Shiite Houthi rebels in Yemen since March and is a member of the U.S.-led coalition battling the Islamic State group in Syria and Iraq.
The government said it is anticipating $189 billion (513 billion riyals) in revenue for the coming year, around $35 billion (95 billion riyals) less than the total for 2015. As is typical for the published version of the budget, it did not include a projected oil price.
Saudi Arabia projected a deficit of $135 billion as it issued its 2016 budget.
Next year’s budget suggests Saudi Arabia is basing its revenue on an even lower price of $US40 a barrel for export crude, if production remains at 10.2 million barrels per day, said Fahad Alturki, chief economist and head of research at Saudi-based Jadwa Investment. That’s less than the $US56 per barrel…