Saudi raises domestic energy prices to shrink budget deficit

UPDATE:  Saudi Arabia has raised domestic energy prices, including fuel prices, state news agency SPA said on its Twitter account on Monday.

Domestic fuel, water and electricity prices are currently among the lowest in the world because of heavy state subsides.

Raising the prices would reduce pressure on the state budget and would be one of Saudi Arabia's biggest economic reforms in many years.

The world's largest oil exporter has set the price of 95 octane gasoline at 0.90 riyals ($0.24) per litre, SPA said, up from the current price of 0.60 riyals per litre.

The kingdom has also raised prices for gas, diesel and kerosene, according to SPA.

The price increases would take effect from Tuesday, the report added.

EARLIER REPORT

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 privatisation.

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.

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 government ran a deficit of 367 billion riyals ($97.9 billion) in 2015, or 15 per cent of gross domestic product, 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.

Next year's budget projects spending of 840 billion riyals, down from 975 billion 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 514 billion riyals, down from 608 billion 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.

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 a value-added tax in coordination with other countries in the region, and raise taxes on soft drinks and tobacco, the ministry said without giving a timeline. 


 

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