Saudi Arabia posts $98B budget deficit as low oil prices cut into revenue

RIYADH, Saudi Arabia -- Saudi Arabia on Monday said this year's budget deficit amounted to $98 billion (367 billion riyals) as lower oil prices cut into the government's main source of revenue, prompting the kingdom to scale back spending for the coming year and hike up petrol prices.

See Full Article

A royal decree announced that petrol prices would go up by 50 per cent effective Tuesday. Even with that jump, Saudis will pay just 24 cents (0.90 riyals) for a litre of 95 octane gasoline, less than a dollar per gallon. The Saudi-based Jadwa Investment estimates the government spends around $61 billion in energy subsidies annually, almost $11 billion of that on gasoline subsidies alone.

For two consecutive years the kingdom has posted a deficit, and it is planning for another budget shortfall next year, projected at $87 billion (326 billion riyals).

The deficits represent a sharp turnaround from just a few years ago, before oil prices tumbled in mid-2014. Instead of cutting oil production to drive prices up, Saudi Arabia has aggressively kept its production levels high in what analysts say is an attempt to keep its market share and stymie the reach of U.S. shale producers in the global market.

The Saudi government has been digging into its large foreign reserves, built up during years of higher oil prices. To cover the difference between its spending and revenue over the past year, Saudi Arabia has drawn its reserves down from $728 billion at the end of last year to around $640 billion.

The Saudi fiscal budget is being watched closely by investors to see how the kingdom plans to consolidate after years of heavy spending when oil prices were more than double what they are now. Benchmark U.S. crude was trading Monday at $37.46 per barrel on the New York Mercantile Exchange.

The government said it is anticipating $137 billion (513 billion riyals) in revenue for the coming year, around $26 billion (95 billion riyals) less than the total for 2015. As is typical for the published version of the budget, it did not include a projected oil price.

Next year's budget suggests Saudi Arabia is basing its revenue on an even lower price of $40 a barrel for export crude, if production remains at 10.2 million barrels per day, said Fahad Alturki, chief economist and head of research at Saudi-based Jadwa Investment. That's less than the $56 per barrel priced into the projected 2015 budget.

In the 2015 budget, oil revenues accounted for 72 per cent of total revenue as opposed to 87 per cent in 2014. Coinciding with that drop, non-oil revenues rose by almost $10 billion from 2014.

Saudi Arabia and its Arab Gulf neighbours have been working to diversify their economies and decrease their dependence on oil, and to support the private sector to absorb the millions of young people coming into the workforce.

Saudi Arabia says it expects to spend $224 billion (840 billion riyals) in 2016, which is $5 billion (20 billion riyals) less than what had been projected for this year. However, the government has also put aside $49 billion (183 billion riyals) in discretionary spending to use on infrastructure projects if oil prices improve.

Nearly half of this year's spending, or around $120 billion (450 billion riyals), went to wages, salaries and allowances. The budget revealed that the kingdom spent $30 billion more in 2015 than it had initially planned, reaching $260 billion (975 billion riyals) in total expenditures largely because of financial handouts King Salman doled out to the public when he ascended the throne earlier this year.

"There hasn't been any major overspending, which shows the government's determination to rationalize spending," Alturki said. "I think it's a positive signal."

The London-based research consultancy Capital Economics said in a report issued this month that the Saudi budget takes on additional prominence because it is the first under the new monarch. The budget is also being heavily scrutinized as it was prepared under the guidance of a newly-formed Council of Economic and Development Affairs, which is headed by the king's 30-year-old son, Deputy Crown Prince and Defence Minister Mohammed bin Salman.

This is not the first time for Saudi Arabia and other oil-producing Gulf countries to run budget deficits. When oil prices steeply dropped in 1986, Saudi Arabia ran a budget deficit for some 15 years, significantly increasing public and external debt until oil prices finally recovered in the 2000s.

Batrawy reported from Dubai, United Arab Emirates.



Advertisements

Latest Economic News

  • Canadian financial companies investing in overseas coal plants despite push against

    Economic CTV News
    OTTAWA - Canada's national pension fund manager is among a group of Canadian companies that are undermining the federal government's international anti-coal alliance by investing in new coal power plants overseas, an environmental organization says. Source
  • Canadians swindled out of $1.7M via cryptocurrency scams this year

    Economic CTV News
    TORONTO - Canadians have been swindled out of than $1.7 million via scams involving cryptocurrencies such as bitcoin so far this year - more than double the amount during all of 2016. The Canadian Anti-Fraud Centre says that's more than five times the amount people lost to these types of scams in 2015, which was roughly $284,000. Source
  • Asian stocks rise after U.S. jobs report

    Economic CTV News
    TOKYO - Share prices were higher in Asia on Monday, lifted by encouraging employment data from the U.S. that took the Standard & Poor's 500 index to its third straight weekly gain on Friday despite weakness earlier in the week. Source
  • Location, location, location: How your health-care coverage is linked to where you live in Canada

    Economic CBC News
    Two men, different provinces, the same life-changing surgery, yet one has to pay out of pocket and the other is covered by the public health-care system in what some call Canada's medical "postal code lottery." Peter Pawlik, a hearing-impaired Calgary man, is travelling to Austria to get a life-changing medical device surgically implanted that will help him hear clearly for the first time. Source
  • Bitcoin futures set to begin trading at Chicago exchange

    Economic CTV News
    CHICAGO -- A security based on bitcoin, the digital currency that has exploded in popularly and volatility this year, was to begin trading on a major U.S. exchange for the first time on Sunday. The Chicago Board Options Exchange, one of the nation's largest traders of options and futures, planned to open up bitcoin futures for trading at 5 p.m. Source
  • Bitcoin futures rise as virtual currency hits major exchange

    Economic CTV News
    CHICAGO -- The first-ever bitcoin future began trading Sunday as the increasingly popular virtual currency made its debut on a major U.S. exchange. The futures contract that expires in January rose $340 to $15,800 in the first hour and 15 minutes of trading on the Chicago Board Options Exchange. Source
  • Shoppers rankled by doorstep theft of big-ticket deliveries

    Economic CTV News
    Todd Bailey is fed up with delivery companies that drop his online purchases at his door. A few years ago, the Grande Prairie, Alta., resident was at the hospital for the birth of his child when a big-screen TV he had ordered was left on his front stoop. Source
  • Even the best companies can't eliminate cyber attacks: experts

    Economic CTV News
    TORONTO -- Companies trying to stay ahead of the increasing threat of cyberattacks need to be cognizant of one simple fact: there is no perfect antidote or turnkey solution against criminals bent on breaching their systems. Source
  • 'Well, there's no limit on it': Ohio student makes a fortune buying Canadian-invented ether cryptocurrency

    Economic CBC News
    Eddy Zillan is an 18-year-old high school senior in Cleveland. He loves going to car shows and he plans to attend dental school after he graduates to become an orthodontist. In many ways, he's like most students his age except for the fact that he's made a fortune buying and selling cryptocurrencies. Source
  • Trump says Trudeau left out lumber, energy while talking trade numbers

    Economic CBC News
    U.S. President Donald Trump regaled a rally of supporters Friday night with a story about a disagreement with Canada's prime minister, then sprinkled his tale with some questionable statistics about international trade. Trump told a partisan crowd in Florida that he and Justin Trudeau had a closed-door debate about trade balances. Source