RIYADH-Saudi Arabia won’t change its current oil-production policy, the country’s energy minister said Wednesday, sticking with a strategy of unrestrained output that has helped send oil prices to multiyear lows.
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 $40 a barrel since mid-2014. Saudi Arabia ran a deficit of 367 billion riyals ($97.9 billion) or 15 per cent of GDP in 2015 and the International Monetary Fund warned the country in October that it could run out of money within five years unless it adopts drastic measures of reform.
As a results, cuts are coming: The budget calls for a 14% reduction to 840 billion riyals ($224 billion U.S.), down from 975 billion ($260 billion U.S.).
Mr. Naimi’s comments also come after the kingdom on Monday unveiled plans to cut government spending, including on energy subsidies for consumers.
Gas prices have been increased to $1.25/MMBtu from $0.75/MMBtu, and ethane, the main feedstock for petrochemicals, to $1.57/MMBtu, up more than 100% from the long-standing fixed price of $0.75/MMBtu, the official Saudi Press Agency said late Monday.
The council made a decision to raise the price of higher-grade unleaded petrol to 0.90 riyals ($0.24) per litre from 0.60 riyals, a hike of 50 per cent, and for lower-grade petrol to 0.75 riyals ($0.20) from 0.45 riyals per litre, a 67 percent rise. The endgame is that Saudi is willing to undergo short-term financial pain to emerge with a greater controlling share of the world’s oil supply.
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”.
The Finance Ministry said it adopted a budget for next year that takes into account the weak crude oil market.
Spending on military and security projects reached 20bn riyals in 2015, Saudi Arabia said, following its intervention in Yemen as well as action against militant group Islamic State.
To finance the budget, the Saudi government withdrew from its huge fiscal reserves and issued bonds on the domestic market.
The ministry also said nominal gross domestic product for 2015 is estimated to drop 13.35 percent to $653 billion.
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