Saudi Arabia Budget Deficit Swells On Oil Price Fall

Saudi's government ran a deficit of $97.9bn (SAR367bn) in 2015, according to Arabian Business, citing Reuters. The budget "comes amid challenging worldwide and regional economic and financial conditions" including "very low oil prices", the statement said.

Saudi Arabia intends to cut spending in 2016 to 840 billion riyals ($224 billion) from 975 billion riyals this year.

Saudi Arabia's Tadawul dropped 3.23 percent following the announcement of the country's $98B budget deficit. The revisions include raising the price of 91 octane gasoline to 0.75 riyals a litre from 0.45 riyals and increasing the price of 95 octane gasoline to 0.90 riyals from 0.60 riyals.

The people of Saudi Arabia will now be subjected to higher utility costs as subsidies will be removed to decrease expenses.

To cover the difference between its spending and revenue over the past year, Saudi Arabia has drawn its reserves down from $728 billion at the end of last year to around $640 billion. Total revenue was estimated at $162 billion, and that income for 2015 was 15% lower than projected.

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 US$40 a barrel since mid-2014.

Saudi, and other members of the Organisation of Petroleum Exporting Countries, better known as OPEC, have failed to curtail output at a time when production from non-OPEC member countries such as Russia and more recently the USA, is also rising. Brent could average just $50 a barrel in 2016, said Edward Morse at Citi. This year's original budget plan projected revenues of almost $191 billion.

And the ministry also said it would review government projects to make them more efficient and ensure they were necessary and affordable, on top of other reforms including "privatising a range of sectors and economic activities". Projections show an $87 billion deficit for next year. "The result of the programme will be to increase energy efficiency, national economy and create many jobs", he said.

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

The small non-oil parts of the economy will find themselves constrained by plans to cut public spending growth, preventing Saudi Arabia from rebalancing away from the commodity that until now has kept it wealthy.