Saudi Arabia raises fuel price 66 per cent amid big subsidy shake-up

Saudi Arabia has raised domestic power, water and fuel prices, and trimmed government spending for 2016, in a shake-up of the Kingdom’s welfare state that the government hopes will help see it through an era of low oil prices.

The Saudi government will raise the price of gasoline by two-thirds to 0.75 riyals a litre from 0.45 riyals for 91 Octane fuel. Higher electricity, water, and gas tariffs were announced by the Saudi Press Agency on Twitter, following the release of the Kingdom’s 2016 budget on Monday.

Subsidy cuts aim “to achieve efficiency in energy use, conserve natural resources, stop waste and irrational use”, the Ministry of Finance said in the annual budget statement. The changes will be monitored to ensure that they do not harm either “low and mid-income citizens [or] the competitiveness of the business sector,” the Ministry said.

Saudi Arabia follows the UAE, which has this year cut subsidies on fuel nationally, and on water and electricity in Abu Dhabi. Bahrain’s cabinet on Monday approved cuts to diesel and kerosene subsidies.

Saudi Arabia’s 2016 budget will see projected spending fall to 860 billion riyals (Dh842bn) in 2016, down from the 975bn riyals it actually spent this year. The lower spending figures mean that, if oil recovers to US$45 per barrel next year, Saudi Arabia will run a fiscal deficit of 16 per cent of GDP, according to Alp Eke, chief economist at the National Bank of Abu Dhabi.

The Kingdom cut infrastructure and transport spending by almost two-thirds in its plans for 2016.

“Our economy has the potential to meet challenges,” King Salman said in a speech announcing the budget.

Oil prices fell to an eleven-year low last week, the latest move in a downwards trend that has seen the crucial commodity fall from close to $110 per barrel in mid-2014 to just $37 per barrel on Monday.

The Saudi government, which will earn just under 80 per cent of its receipts from the sale of hydrocarbons this year, needs the oil price to be closer to $105 per barrel in order to avoid spending more than it earns, Deutsche Bank estimates. The Kingdom has not said what oil price it expects in 2016.

The Saudi government also said on Monday that its 2015 deficit was 13 per cent of GDP, considerably smaller than most analysts had forecast. The IMF expected the Kingdom’s deficit this year to equal 21 per cent of GDP.

The Tadawul Index, Saudi’s stock market, rose 0.7 per cent after the budget announcement.

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