Saudi Arabia projects USD 87 B deficit amid low oil prices

The swift action to cut subsidies was unexpected, even if there had been no doubt Saudi Arabia would post a deficit this year as oil prices have dropped below $54 a barrel since mid-2014.

The 2016 budget statement suggests the kingdom is preparing for a multi-year period of cheap oil.

The Kingdom of Saudi Arabia’s Ministry of Finance has outlined the country’s 2016 budget plans, revealing a plan to reduce spending next year due to low oil prices.

The Desert Kingdom plans to cut annual state spending by 14 per cent, and is looking at the possibility of reducing electricity subsidies.

“The budget deficit has been compensated through the easiest way…on the shoulders of the poor citizen”, Naif al-Kassim said on Twitter.

The government said expenditure reached 975 billion riyals (US$260 billion) in 2015, 13 per cent above its target.

The government forecasts the deficit will narrow to 326.2 billion riyals (US$87 billion) in 2016, from 367 billion riyals this year. The price of oil has slumped by more than two thirds from a peak 18 months ago of $115. Those bonuses amounted to 88 billion riyals.

King Salman said the budget came “in light of the decrease in oil prices, the economic and regional and worldwide financial challenges – where global economic growth has declined from its previous level – and the lack of stability in some of the neighbouring states”.

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

The sharp increase was a surprise as the finance ministry said Monday that it would implement a “gradual” five-year program aimed at structural economic reform, including fuel price hikes, to improve energy efficiency. “The increase in production depends on… the demand of the customers”.

Vehicles thronged petrol stations in Saudi Arabia Monday evening to fill up tanks at the old rates.

The economist Dr John Sfakianakis told Asharq Al-Awsat that this is the most cautious budget in recent years as it is the first time in more than ten years that the oil price has been calculated as less than $50 per barrel in a budget.

Saudi Arabia, the de facto leader of the 12-member Opec oil cartel, has led the move to drown the world with excess supply, in an attempt to undercut higher-cost rivals such as U.S. shale oil producers.

Oil prices have plunged about 60% since the summer of 2014 and it is not only hurting energy companies’ balance sheets but it’s slowly killing off oil-rich countries’ economies – the latest being Saudi Arabia.