40% hike on petrol as Saudi Arabia adjusts subsidies

40% hike on petrol as Saudi Arabia adjusts subsidies
Saudi Arabia has projected a budget deficit of $87 billion for 2016, promising economic reforms but maintaining a high level of spending, while increasing domestic petrol prices by 40 percent.
2 min read
28 December, 2015
Saudi Arabia will complete necessary arrangements for the application of the value added tax [AFP]
Saudi Arabia issued its 2016 budget on Monday, projecting a deficit of 326 billion riyals ($87 billion), maintaining a high level of spending despite very low oil prices, but adjusting subsidies.

Saudi King Salman Bin Abdulaziz who announced the 2016 budget on Monday said that the new budget comes amid regional and international economic and financial challenges and low oil prices.

Next year's revenues are forecast at 513 billion riyals ($137 billion), the lowest since 2009, while spending is projected to be higher at 840 billion riyals ($224 billion).

Saudi Arabia will raise the price of petrol by 40 percent starting from Tuesday as part of a plan to cut subsidies.

The Finance Ministry said that the government is planning to make structural economic reforms and to adjust subsidies for water, electricity and petroleum products over the next five years.

Economic experts had previously forecast spending for 2016 to be $11 billion less than announced in the budget, or at 800 billion riyals ($213.3 billion).


In 2015, the Saudi government ran a record budget deficit of 367 billion riyals ($98 billion), according to an advisor to the Saudi Council of Economic and Development Affairs, Hindi bin Abdullah al-Suhaimi.

Suhaimi said on Monday that the deficit is "considered an acceptable figure," taking into account the high level of spending this year, which reached 975 billion riyals ($260 billion).

The budget in 2015 was adopted when the lowest price of a barrel of oil was estimated to reach $60. The price fell to a much lower level at nearly $40, putting a lot of pressure on the budget, which was forecast at 860 billion riyals ($229.3 billion), economic expert Hammoud al-Otaibi told The New Arab.

Economic reforms

The kingdom is trying to reduce its dependence on oil and review current levels of fees and fines, introduce new fees, and complete the necessary arrangements for the application of the value added tax (VAT) recetly approved by the Supreme Council of the Arab Gulf States Cooperation Council (GCC).

Fiscal management will be enhanced by establishing a public finance unit in the Ministry of Finance responsible for setting a budget ceiling by adopting a medium-term expenditure framework.

The growth of recurring expenditures, particularly salaries, will be reduced.

Global oil prices have slumped by nearly 60 percent since June 2014, where the price of a barrel fell from $115 to less than $38.