World Economy

S. Arabia Cuts Subsidies as Budget Deficit Swells

S. Arabia Cuts Subsidies as Budget Deficit Swells S. Arabia Cuts Subsidies as Budget Deficit Swells

Saudi Arabia's budget deficit soared to $98 billion this year as the world's biggest oil exporter counted the cost of falling crude prices.

In the first budget under King Salman, the kingdom said revenues reached 608 billion riyals ($162 billion), down 15% on official expectations. Spending for the year hit 975 billion riyals, some 13% more than forecast, BBC reported.

To help make up the shortfall, the country's finance ministry said it would cut subsidies for fuel. Petrol prices could in some cases increase by as much as 50%, authorities said, although they will remain low by international standards. Diesel, electricity and water prices will also increase.

Salman said the budget came "in light of the decrease in oil prices, the economic and regional and international financial challenges–where global economic growth has declined from its previous level–and the lack of stability in some of the neighboring states."

Oil Revenue

Oil prices have plunged from a five-year high of $125 a barrel in March 2012 to just $37.18 now. And Saudi Arabia said that oil revenues, which make up 77% of the total revenue figure for 2015, are down 23% compared to last year.

It is the largest member of the OPEC oil-producing group and has refused to cut output in order to raise prices in an attempt to put other producers–mainly US shale oil companies–out of business.

Saudi rulers think they can withstand low oil prices for longer than US producers, many of which are small, heavily-indebted firms.

Spending on military and security projects reached 20 billion riyals in 2015, Saudi Arabia said, following its intervention in Yemen.

The majority of the increase in overall spending was on salaries to civil and military Saudi employees.

Deficit Financing

The projected deficit in next year’s budget will continue to be financed using a combination of Saudi Arabian Monetary Agency’s huge stock of net foreign assets, and domestic debt, analysts predicted on Monday, Arab News reported.

The finance ministry said that government bonds were issued to the local financial market during the current fiscal year, totaling 98 billion riyals.

By the end of the current fiscal year 2015, public debt is estimated at 142 billion riyals, equivalent to 5.8% of the expected GDP this year, as compared to the public debt registered at the end of the last fiscal year (2014) of 44 billion riyals, which represented 2% of GDP for 2014.

The deficit is "considered an acceptable figure" under the circumstances, with oil languishing at multi-year lows, Hindi bin Abdullah Al-Suhaimi, an adviser to the council, told a media briefing.