The Kingdom of Saudi Arabia’s Ministry of Finance has outlined the country’s 2016 budget plans, revealing a plan to reduce spending next year due to low oil prices. That’s about 16 percent of gross domestic product, according to the National Bank of Abu Dhabi, but below the 20 percent forecast by the International Monetary Fund. For 2016, the government expects the deficit to narrow to 326 billion riyals.
Oil prices remained weak in Asia today on tepid economic data from Japan and indications that major crude exporter Saudi Arabia’s 2016 budget is based on prices staying low.
Income for 2015 was 15 per cent lower than projections and 42 per cent less than in 2014, after oil prices fell by nearly two thirds since mid-2014 to below $40 a barrel. Oil revenues are expected to reach $118 billion, a decline of 23 percent from the previous year. Falling by over 60%, a barrel of crude now sells for less than $50, and those figures have had a drastic impact on the Saudi Arabian economy, which relies on oil for roughly 90% of its revenue.
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.
The spending cuts, rises in fuel, gas feedstock and electricity prices, and tax rises planned in the budget are expected to hurt sectors such as construction and petrochemicals, and slow economic growth next year.
Also, the cabinet has said that the hike in price in inline with worldwide energy prices.
It is the largest member of the Opec oil-producing cartel and has refused to cut output in order to raise prices in an attempt to put other producers – mainly USA shale oil companies – out of business.
The reserves dropped from Dollars 732 billion at the end of 2014 to USD 628 billion in November, Jadwa said.
However, those stocks surged 9.9 and 9.6 percent respectively on Monday in anticipation of the budget, so they may not rise further in the short term.
Saudi Arabia has raised domestic energy prices, including fuel, water and electricity prices, state news agency SPA reported on Monday. That’s less than the $56 per barrel priced into the projected 2015 budget.
Next year’s budget projects spending of 840 billion riyals, down from 975 billion spent this year.