Saudi 2016 growth to dive as debt rises, reserves drop: report

Saudi economic growth is set to slow further in 2016 after the OPEC heavyweight announced record deficits due to the slump in oil prices, an economic report said today.

Jadwa Investment forecast the Saudi economy would grow by just 1.9 per cent next year, down from 3.3 per cent this year and 3.5 per cent in 2014.

The world’s top oil exporter announced Monday a record budget deficit of USD 98 billion in 2015 and projected a shortfall of USD 87 billion next year.

Jadwa expects the oil sector to grow by a meagre 0.9 per cent on an average crude production of 10.2 million barrels per day.

To finance the budget, the Saudi government withdrew from its huge fiscal reserves and issued bonds on the domestic market.

The reserves dropped from USD 732 billion at the end of 2014 to USD 628 billion in November, Jadwa said.

The kingdom is estimated to have issued domestic bonds worth around USD 30 billion since July, raising public debt to USD 38 billion, or 5.8 per cent of Gross Domestic Product, Jadwa said.

This year also saw the first deficit in the kingdom’s current account since 1998, at USD 41.3 billion or 6.2 per cent of GDP, it said. The slide is expected to continue next year.

To counter the shortfalls, Riyadh introduced unprecedented hikes to the prices of fuel, electricity and other utilities by as much as 80 per cent, reducing decades-old subsidies.

Jadwa estimated the cost of energy subsidies at USD 61 billion this year, of which diesel accounted for USD 23 billion and gasoline for USD 9.5 billion.

Jadwa estimated the oil price used to calculate oil income in 2016 at USD 40.3 a barrel, down from USD 64.8 a barrel this year. The actual price of Saudi oil in 2015 averaged USD 49 a barrel.

It said that investment spending in next year’s budget was cut by 19.3 per cent to USD 59 billion.

Revenues in 2015 dropped to USD 162 billion, the lowest since the global financial crisis in 2009, due to a massive USD 123 billion fall in oil revenues.

The contribution of oil income to revenues dropped to just 73 per cent in 2015, from an average of 90 per cent in the past decade.

Jadwa expected the Saudi government to announce a National Transformation Programme (NTP) in January to outline further plans to boost non-oil income.