Spending cuts and major economic reforms to be introduced
Saudi Arabia expects a SR326bn ($87bn) budget deficit in 2016 as the Middle Easts largest economy embarks on spending cuts and economic reforms to compensate for shrinking oil revenues.
Revenues for the kingdom, the top oil exporter in Opecs basket, are projected at SR513bn, almost 16 per cent lower than the actual revenues of 2015 which sat at SR608bn, according to a budget press release published by the Ministry of Finance on 28 December.
The government expects the actual expenditures for 2015 to reach SR975bn ($260bn), which is 13 per cent increase on the estimated budget spending. In 2016, the government projects to spend SR840bn ($224bn), a reduction of SR135bn ($36bn) from actual spending last year.
The increase in spending in 2015 was mainly due to additional salaries for civil and military employees, beneficiaries of social security and retirees, which amounted to SR88bn, a 77 per cent increase in total expenditure in addition to what has been spent on military and security projects which amounted to SR20bn, according to the press release.
Oil revenues in 2015 are expected to be SR444.5bn, representing 73 per cent of the total revenue. This is 23 per cent less than oil revenue during the 2014. The non-oil revenue in 2015 increased from SR126.8bn in 2014 to SR163.5bn this year.
The budget for the next fiscal year is adopted in light of very low oil prices, as average rates for 2015 declined by more than 45 per cent from the average of 2014 and continued to decline into 11-year record low in the last few weeks, according to the statement. This budget also comes amid challenging international and regional economic and financial conditions, namely a global economic slowdown in growth.
Oil producing cartel Opec is battling with the US shale producers for its share of the global oil trade. The Saudi-led price war has sent shockwaves across the six-member economic bloc of the GCC. The Gulf States, which account for about a third of the worlds proven oil reserves, rely heavily on sale of oil and are now braving softening of economies and are rethinking spending plans amid shrinking revenues.
The kingdom has maintained a budget deficit in the past decade when the $100 a-barrel economic windfall had allowed it to continue spending tens of billion on dollars on mega infrastructure projects. The price of crude has more than halved since mid-2014 and is expected to stay low. With the change in the kingdoms economy, policymakers in Riyadh are now faced with some hard choices that include spending cuts and major economic reforms surrounding taxation and subsidies.
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