Saudi Arabia, the world’s largest oil exporter, posted yesterday a record budget deficit of $98bn (£66bn) this is its second deficit in consecutive years. Though this figure was less than some economists predicted ($130bn) it nevertheless has ‘forced’ the Kingdom’s Finance Ministry to look at revenue raising and other money saving measures.

These include:

  • Applying VAT and raising charges on public services
  • Reviewing the current subsidies on power and fuel
  • Other public spending measures

The Ministry has provided a forecast projected deficit of $87bn (£58bn) for 2016.

With oil prices having collapsed from $115 in 2014 to the current level of just over $36, Saudi revenues have fallen to their lowest levels since 2009 and income has been reduced by a significant 42% compared with 2014.

In spite of this Riyadh has maintained its high spending level and launched an expensive military intervention in Yemen, drawing on significant fiscal reserves it had accumulated when prices were high.

This is indeed the price Saudi Arabia is paying for attempting to drive less competitive producers such as the US shale oil fields out of business.