Saudi Arabia reveals cuts plan to shrink $98bn budget deficit | World Defense

Saudi Arabia reveals cuts plan to shrink $98bn budget deficit

Gabriel92

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Sparked by plunging oil prices, the 2016 budget marks biggest shakeup in years and includes politically sensitive reforms



An oil field in Saudi Arabia. The IMF warned in October Riyadh would run out of money within five years if it did not tighten its belt. Photograph: Eye Ubiquitous/Rex/Shutterstock

Saudi Arabia has announced plans to cut government spending and reform its finances after plunging oil prices resulted in a record annual budget deficit of nearly $98bn (£66bn).

The state ran a deficit of 367bn riyals ($97.9bn) in 2015, or 15% of gross domestic product, officials said. The 2016 budget plan aims to cut that to 326bn riyals, reducing pressure on Riyadh to pay its bills by liquidating assets held abroad.

The 2016 budget, released by the finance ministry on Monday, marked the biggest shake-up to economic policy in the world’s top crude exporter for more than a decade, and includes politically sensitive reforms from which authorities previously shied away.

The plan suggests the kingdom is not counting on a major recovery of oil prices any time soon but is instead preparing for a multi-year period of cheap oil. The International Monetary Fund warned in October that Riyadh would run out of money within five years if it did not tighten its belt.

Saudi Arabia’s public finances benefited from increases in oil prices after 2003 and the world’s biggest crude exporter was running a budget surplus of 12% of GDP as recently as 2012.

“Our economy has the potential to meet challenges,” King Salman said in a speech, adding that the 2016 budget launched a phase in which his kingdom would diversify its revenues.

Next year’s budget projects spending of 840bn riyals, down from 975bn riyals actually spent this year. The finance ministry said it would review government projects to make them more efficient and ensure they were necessary and affordable.

Revenues next year are forecast at 514bn riyals, down from 608bn riyals in 2015. The Brent oil price averaged about $54 a barrel this year but is now about $37.

The success or failure of the budget plan will be key to maintaining the confidence of financial markets in Riyadh.

As the deficit has swelled, the riyal has dropped in the forwards market to its lowest since 1999 because of fears that Riyadh may eventually have to abandon its peg to the US dollar.

In its budget statement, the finance ministry said it would adjust subsidies for water, electricity and petroleum products over the next five years. That is a politically sensitive step, since the kingdom has traditionally kept domestic prices at some of the lowest levels in the world as a social welfare measure.

Any changes will aim to make energy use more efficient and conserve natural resources, while minimising the negative effects on lower- and middle-income Saudis, the ministry said.

It also outlined other reforms including “privatising a range of sectors and economic activities”, although it did not give details.

The government plans to introduce VAT in coordination with other countries in the region, and raise taxes on soft drinks and tobacco, the ministry said, without giving a timeline.

Saudi Arabia reveals cuts plan to shrink $98bn budget deficit | World news | The Guardian
 

Scorpion

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I used to fill my car with 0.12 USD per litre. Now its 0.20 USD per litre.:,( Still the cheapest in the world but we like to complain.(:-)

I think the government should stop subsiding oil for domestic use and let the oil market determine the prices. This news is not as bad as its sound as Saudi Arabia has the second largest foreign exchange reserve in the world. Some point mentioned in the article are not faculty correct e.g
The IMF warned in October Riyadh would run out of money within five years if it did not tighten its belt
The new announced budget smashed all the predictions published by major financial institutions around the world. We have a solid economy that we can depend on for millennium of years.
 

Gabriel92

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I used to fill my car with 0.12 USD per litre. Now its 0.20 USD per litre.:,( Still the cheapest in the world but we like to complain.(:-)
Do you live there ?
I think you can cry the day you'll pay €1 per litre as we do here ! But thanks to low prices,it might decrease very soon,and i see it as a good news for me ! :D

I think the government should stop subsiding oil for domestic use and let the oil market determine the prices. This news is not as bad as its sound as Saudi Arabia has the second largest foreign exchange reserve in the world. Some point mentioned in the article are not faculty correct e.g

The new announced budget smashed all the predictions published by major financial institutions around the world. We have a solid economy that we can depend on for millennium of years.
It's finally time for Saudi Arabia (and much of the countries in the middle east) to build a real economy not only based on oil. You could have done it decades ago ! (And probably avoid such deficits that equal to more than 10% of your GDP.)
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Don't take it as an offence,but it is better to build a real strong economy than sitting on a chair and waiting the soil to fart something. ¶•¶ :D
 

Scorpion

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Do you live there ?
I think you can cry the day you'll pay €1 per litre as we do here ! But thanks to low prices,it might decrease very soon,and i see it as a good news for me ! :D
Now we pay € 0.16 per litre and we still complain. It used to be € 0.10 pL. Not that much of a difference.

I live in Saudi Arabia. We Saudi don't go anywhere.(:-)

It's finally time for Saudi Arabia (and much of the countries in the middle east) to build a real economy not only based on oil. You could have done it decades ago ! (And probably avoid such deficits that equal to more than 10% of your GDP.)
-
Don't take it as an offence,but it is better to build a real strong economy than sitting on a chair and waiting the soil to fart something. ¶•¶ :D
The deficit can easily be covered. The newly road plan announced by the government will be in affect very soon. Yeah diversifying our economy is the need of the hour.
 
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