After years of spending its massive oil wealth to bolster the local economy and provide subsidized energy and other utilities to its 30 million people, a steep decline in oil priceshas forced the kingdom to reassess these plans.
On Monday, officials said the government ran a record deficit of nearly 367 billion Saudi riyals ($98 billion) this year, or about 15% of gross domestic product, as low oil prices suppressed revenue, pushing it to cut planned spending by 14% in 2016 amid expectations that income from oil sales will remain under pressure.
Shortly after unveiling the budget for 2016, Saudi Arabia increased domestic fuel prices in a move that suggests that the government is willing to adopt some difficult measures as it deals with cheap oil.
A cut in subsidies risks a backlash in the kingdom as its citizens are accustomed to cheap energy and other utilities.
“The budget deficit has been compensated through the easiest way…on the shoulders of the poor citizen,” Naif al-Kassim said on Twitter.
The government said it plans to spend 840 billion riyals in 2016, down from the 975 billion riyals it expects to spend this year. The kingdom usually spends more than it budgets for, as was the case in 2015 when it had planned spending of only 860 billion riyals. However, oil prices have fallen by more than 50% since the middle of last year, crimping the government’s spending.
The government attributed the majority of the deficit in this year’s budget to the bonus to government employees ordered by King Salman after ascending the throne. Those bonuses amounted to 88 billion riyals. There was also an additional 20 billion riyals spent on defense and security because of the Yemen war, officials said.
The kingdom expects to run a deficit of 326.2 billion riyals in 2016, as projected revenue falls to 513.8 billion riyals, down from 608 billion riyals this year, officials said.
“The budget comes in light of lower oil prices and economic and financial challenges on regional and international levels…our economy, with the help of God, has what it takes to overcome the challenges,” King Salman said on state television, underlining the challenges facing the kingdom.
Extract from Wall Street Journal – 29th Dec 2015