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

  • Judge overturns $417M award against Johnson & Johnson in ovarian cancer case

    Economic CBC News
    A judge on Friday tossed out a $417-million US jury award to a woman who claimed she developed ovarian cancer by using Johnson & Johnson talc-based baby powder for feminine hygiene. Los Angeles County Superior Court Judge Maren Nelson granted the company's request for a new trial, saying there were errors and jury misconduct in the previous trial that ended with the award two months ago. Source
  • Long-term future of Bombardier's other commercial aircraft unclear: analysts

    Economic CTV News
    MONTREAL -- Bombardier's strategic C Series partnership with Airbus should put it on stronger financial footing but it remains unclear what fate awaits its other commercial aircraft. The Montreal-based transportation company remains burdened by more than US$9 billion of debt and wants to regain its leading position in the high-margin business jet market. Source
  • Questions and answers on proposed ban on laptops in luggage

    Economic CTV News
    WASHINGTON -- First the U.S. government temporarily banned laptops in the cabins of some airplanes. Now it is looking to ban them on from checked luggage on international flights, citing the risk of potentially catastrophic fires. Source
  • So, who in Canada actually applied to be Amazon's next HQ2?

    Economic CBC News
    Amazon's announcement earlier this year that it wants a second headquarters set off a flurry of interest from cities across the continent, all eager to be a new home to the biggest online merchandise seller in the world. Source
  • Nature's Mix removes cancer claim from granola label after Marketplace investigation into 'superfoods'

    Economic CBC News
    Nature's Mix, a company that makes granola with quinoa that it markets as a "superfood" and that included a nutrition label that claimed quinoa "prevents cancer" has removed the claim after a Marketplace investigation. The old nutrition label on Nature's Mix Superfood Granola with quinoa listed a series of purported health benefits associated with the grain: energy booster, sleep aid, controls blood sugar, curbs food craving, weight control, lower cholesterol, prevents cancer. Source
  • So, which Canadian cities actually applied to be Amazon's next HQ?

    Economic CBC News
    Amazon's announcement earlier this year that it wants a second headquarters set off a flurry of interest from cities across the continent, all eager to be a new home to the biggest online merchandise seller in the world. Source
  • Yellen says Fed's extraordinary policies may be needed again

    Economic CTV News
    WASHINGTON -- Federal Reserve Chair Janet Yellen on Friday defended the central bank's extraordinary efforts to fight the Great Recession and said they might be needed again. During the recession, the Fed pushed short-term interest rates to zero. Source
  • Half of Tim Hortons franchisees in Canada join unsanctioned group

    Economic CTV News
    Less than a year after it was created, a group looking to raise Tim Hortons franchisees' concerns over the chain's management has recruited half of all of Tim Hortons Canadian franchisees into its ranks. The Great White North Franchisee Association president David Hughes said in a letter sent to all franchisees that half of the chain's franchisees have shown they support the significant issues the group publicizes. Source
  • Hudson's Bay CEO Jerry Storch leaving company

    Economic CBC News
    Jerry Storch is stepping down as chief executive of Hudson's Bay Co., the retailer announced after the close of stock markets on Friday. Storch will depart effective Nov. 1 and return to his firm, Storch Advisors, HBC said in a release. Source
  • Pokemon to say goodbye to Nintendo 3DS

    Economic CTV News
    The twin release of Pokemon Ultra Moon and Pokemon Ultra Sun in Nov. 2017 will be the core franchise's last appearance on Nintendo 3DS, paving the way for a shift in focus to other formats. Source