Saudi Arabia has announced plans to shrink its record budget deficit with spending cuts, reforms to energy subsidies and a drive to raise revenues from taxes and privatisation.
Reuters reported that the plan indicates that 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 2016 budget, released by the Saudi 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 International Monetary Fund warned in October that Riyadh would run out of money within five years if it did not tighten its belt.
OPEC – led by Saudi Arabia – is maintaining high oil output to depress global crude prices and to maintain market share and to financially starve US domestic shale oil producers out of the market.
World oil production this year has exceeded demand by two million barrels per day at times and in 2016, Iran is expected to add its exports to the glut after Western sanctions on its oil are lifted.
Brent crude oil has slumped more than two-thirds below its Summer 2014 price of $110-barrel – depressed by abundant US shale oil supplies and the OPEC decision to pump near record volumes of crude to safeguard their market share – to below $40-barrel today.
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