Published By : 30 Dec 2015 | Published By : QYRESEARCH
People in Saudi Arabia have long been accustomed to some of the lowest petrol prices in the world and cheap utilities. But the stunning drop in the global prices of crude oil over the past 18 months has changed the overall financial makeup of country owing to its vast dependence on oil import for finances.
After years of spending high funds for providing the country’s residents basic services and goods at extremely cheap prices, the country has swiftly moved to impose record cuts in subsidies after announcing a budget deficit of US$98 bn for the next year – the largest deficit in the country’s history and a 15% of the GDP of the country.
Owing to this, prices of fuel products in the country increased by upto 80 percent. The prices of most commonly sold petrol also increased by a whopping 50 percent.
Adoption of such strict measures for cutting expenses by the world’s largest exporter of crude oil and one of the richest oil producing countries is a signal that the outlook for oil prices in the next year is also under pressure. Saudi Arabia is bracing itself for long periods of low return and is expecting that Iran will start flooding the global market with oil once the sanctions on it are lifted.
Analysts say that the budget deficit plans through cutting on spending, developing reforms for energy subsidies and privatization drive are signs that the country wants to stick to its plans of not cutting oil output. The reforms are also a sign that the country is prepared to agree to cheap prices as it seeks to heighten pressure on its higher cost rivals such as U.S. shale producers and can wait for the market to rebalance.
The new budget of the country is a clear retreat from its generous welfare system, which spans for decades, and will mean a rise in prices of electricity, water, cigarettes, and even plane tickets, other than fuel.
Revenues of the country dropped to US$162 bn in 2015, which is the lowest since the global recession of 2009, owing to a massive loss of US$123 bn in oil revenues. Also, the contribution of oil revenues dropped from an average of 90 percent over the past decade to only about 73 percent in this year.