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Saudi Posts Record Deficit Amid Oil Slump

Saudi Arabia’s bourse tumbled more than 3 percent in early trading after the government announced its 2016 budget late on Monday which included spending cuts, rises in fuel prices, reforms to energy subsidies and a drive to raise revenues from taxes and privatisation.

The budget deficit is the highest in the history of Saudi Arabia, but was not as big as some expected.

Saudi Arabia’s planned cuts in spending and energy subsidies signal that the world’s largest crude exporter is bracing for a prolonged period of low oil prices.

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 Saudis plan to shrink the deficit to 326 billion riyals by slashing subsidies for petrol, electricity, water, diesel and kerosene, the budget papers revealed.

In an effort to put competing oil producers out of business – as well as USA shale-oil extraction companies – Saudi Arabia and other OPEC nations have increased production.

The Middle Eastern kingdom unveiled a £66billion ($66bn) deficit for 2015, 15 per cent of GDP, after fuel revenue failed to provide enough to balance out the government’s lavish spending.

State-owned Saudi Aramco has a total refining capacity of 2.91 million b/d across wholly owned and joint venture refineries in the country.

Bloomberg News said Saudi’s 2016 budget is probably based on crude prices of about $29 a barrel. Oil normally contributes the vast majority of public income.

“Falling oil prices could make sure reforms both more urgent and, possibly, politically easier to implement”, the International Monetary Fund said in a report this year. A quarter of that will be allocated to military and security purposes. With a proxy war against Iran playing out in neighbouring Yemen, and the ISIS insurgency on its doorstep, you might have thought that Saudi remits for the global defence industry were secure – but you need deep pockets to throw your weight around.

Jadwa Investment forecast the Saudi economy would grow by just 1.9 percent next year, down from 3.3 percent this year and 3.5 percent in 2014.

The kingdom withdrew more than $80bn this year from its reserves, which stood at $732bn at the end of 2014, and issued bonds worth about $20bn.

The ministry also said nominal gross domestic product for 2015 is estimated to drop 13.35 percent to $653 billion.

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