Saudi Arabia in a bid to slash a whopping budget deficit of $98 billion this year, has increased fuel prices, with effect from today. The government is also cutting subsidies on electricity, water, diesel and kerosene.
Under the new price regime, higher-grade unleaded petrol rises to 0.90 riyals ($0.24) per litre from 0.60 riyals, a hike of 50 percent. Lower-grade petrol goes to 0.75 riyals from 0.45 riyals per litre, up two thirds. The average price of petrol in the oil rich kingdom is still 22 cents, in contrast with fellow OPEC member Nigeria, where the price is 44 cents.
The prices increases came as Riyadh also projected a shortfall of $87 billion in the 2016 budget, the first since King Salman took over the country in January. However the IMF thinks the deficit will be much higher at $130 billion, while some other projections estimated it to be above $100 billion.
The finance ministry said in a statement that revenues in 2015 were estimated at 608 billion riyals ($162 billion), the lowest since 2009 when oil prices dived as a result of the global financial crisis.
The 2015 deficit is the highest in the history of Saudi Arabia, which relies on oil for 90 percent of public revenues, but was not as big as some expected.
Income for 2015 was 15 percent lower than projections and 42 percent less than in 2014, after oil prices fell by almost two thirds since mid-2014 to below $40 a barrel.
The dive is largely due to Saudi Arabia’s own policies and those of other OPEC nations, who are refusing to cut oil production as they seek to drive less-competitive players, including US shale producers, out of the market.
The ministry said oil income made up just 73 percent of total revenues in 2015, way below its contribution in previous years. Meanwhile, non-oil revenues rose 29 percent to $43.6 billion.
Spending this year came in at $260 billion, the ministry said, almost equal to 2013 expenditures and down 6.6 percent from 2014. Saudi Arabia normally overspends its budget projections by around 20 percent.
The IMF has warned Riyadh that failure to cut spending and implement reforms will eat up the country’s fiscal reserves in just five years.
The kingdom withdrew more than $80 billion this year from the reserves, which stood at $732 billion at the end of 2014, and issued bonds worth around $20 billion.