Saudi Riyal Forwards Jump to 16-Year High Following Budget Plan

Analysts said they saw positives in the budget announcement; the 2015 deficit of 367 billion riyals ($97.9 billion) was lower than the 400-450 billion riyals which many investors had feared, and the planned cut in 2016 spending was smaller.

Saudi Arabia is to consider major changes to its high spending, low tax regime after the plunge in world oil prices saw it post a record budget deficit of $98bn (£66bn).

Oil Minister Ali al-Naimi told reporters at an event in Riyadh Wednesday that the world’s top oil exporter won’t change its “reliable” energy policy despite pressure on finances.

“I expect that the government will be able to easily raise non-oil revenues above the 200 billion riyal ($53 billion) mark next year with the introduction of the new fees”, Abu-Dahesh said. It was unclear how much the intervention in Yemen was costing as Saudi Arabia has not previously released figures on defence spending. The bottom will come as more energy producers default amid languishing prices, only then will it be time to get back in, but that looks to be a few years away.

The kingdom – a member of Organisation of Petroleum Exporting Countries (OPEC) – has seen a sharp drop in revenues as oil prices have plummeted more than 60 percent since mid-2014 to below $40 a barrel.

The country announced Monday a Riyal 513 billion budget for 2016, down from $229 billion in 2015.

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.

Saudi Arabia is following what the UAE did, which became the first Gulf state to liberalise fuel prices earlier this year.

“In recent days we have been seeing pretty big moves again in the rouble to new record lows as we move to year end”, said Nomura’s Tim Ash, adding this was partially due to the rouble catching up with the decline in oil prices.

To finance the budget, the Saudi government withdrew from its huge fiscal reserves and issued bonds on the domestic market.

Riyadh projected a shortfall of $87 billion in next year’s budget, the first since King Salman took over in January.

The ministry said oil income made up just 73 percent of total revenues in 2015, way below its contribution in previous years.