Saudi Arabia, its finances hit by low oil prices, announced plans to shrink a record state budget deficit with spending cuts, reforms to energy subsidies and a drive to raise revenues from taxes and privatization.
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 over 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.
“Our economy has the potential to meet challenges,” King Salman said in a speech, adding the 2016 budget launched a phase in which his kingdom would diversify its revenues.
The government ran a deficit of 367 billion riyals ($97.9 billion) or 15 percent of gross domestic product in 2015, officials said. The 2016 budget plan aims to cut that to 326 billion riyals, reducing pressure on Riyadh to pay its bills by liquidating assets held abroad and issuing bonds.
Next year’s budget projects spending of 840 billion riyals, down from 975 billion riyals actually spent this year. The 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 514 billion riyals, down from 608 billion riyals in 2015, when oil revenues accounted for 73 percent of the total. The Brent oil price averaged about $54 a barrel this year but is now around $37.
The success or failure of the budget plan will be key to maintaining the confidence of financial markets in Riyadh.