Despite projecting it would spend $229.3 billion (860 billion riyals) in 2015, the kingdom actually spent $260 billion (975 billion riyals), in large part because of handouts King Salman doled out to the public when he ascended the throne earlier this year.
Saudi Arabia may be forced to devalue its currency after announcing a harsh austerity budget with spending cuts, privatisations, and hikes in taxes and prices of fuel, gas feedstock and electricity, which combined to add further pressure on global crude oil prices.
Oil prices struggled in subdued Asian trade Tuesday on tepid economic data from Japan and indications that major crude exporter Saudi Arabia’s 2016 budget is based on prices staying low.
The government ran a deficit of 367 billion riyals ($97.9 billion) or 15 percent of gross domestic product in 2015, officials said. Oil normally contributes the vast majority of public income.
Riyadh maintained high spending this year, and launched a military intervention against Iran-backed rebels in Yemen, by tapping into the huge fiscal reserves it accumulated when oil prices were high. It has slumped from a high of more than $115 in the summer of 2014.
“Saudi Arabia more than anyone else has the capacity to wait out the market until this balancing takes place”.
Saudi Arabia had a chance to limit production of oil on December 4, at a meeting of the Organisation of Petroleum Exporting Countries, a cartel of 13 nations (not including the US) that exists to stabilise oil prices. Saudi Arabia normally overspends its budget projections by around 20 percent. Coinciding with that drop, non-oil revenues rose by nearly $10 billion from 2014.
Mr. Naimi’s comments also come after the kingdom on Monday unveiled plans to cut government spending, including on energy subsidies for consumers.
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.
“We don’t see any changes to Saudi Arabia’s oil policy in the context of oil production”, said Energy Aspects analyst Amrita Sen.
This budget is the first of King Salman’s reign, drafted under the leadership of his powerful son, Deputy Crown Prince Mohammed bin Salman, the head of the country’s new economic council.
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