Saudi Arabia raises energy prices to shrink budget deficit

Saudi Arabia’s government said on Monday it plans to gradually cut energy subsidies and privatize state entities over the next five years, as the world’s biggest oil exporter accelerates efforts to shrink its budget deficit, increase non-oil revenue, and cut public expenditure.

In an unprecedented move, the cabinet, headed by King Salman, approved decisions to raise the prices of oil derivatives including gas, ethane, propane, kerosene and diesel.

The price of higher-grade unleaded gasoline will rise to SAR 0.90 per liter from SAR 0.60 riyals, a hike of 50 percent. Lower-grade petrol will be hiked to SAR 0.75 from SAR 0.45 per liter, up 67 percent.

Electricity prices for residential, governmental, commercial, agricultural and industrial use were also adjusted in accordance with consumption levels.

The prices of fresh water and sewage utilities were adjusted across the board.

“All consumers, without exceptions, are obliged to pay their due bills on time for Saudi Aramco, Saudi Electricity Co, National Water Company and all the related entities,” according to the cabinet statement.

The budget is the first under King Salman, who came to power in January, and an economic council headed by his son, Deputy Crown Prince Mohammed bin Salman.

The Finance Ministry said in an earlier statement when it released the budget that starting in the fiscal year 2016, the government will work on cutting the ballooning wages and bonus bill, which accounts for 50 percent or SAR 450 billion of the country’s budget.

It also plans to review current service fees and fines and impose new fees, complete the arrangements to impose value-added taxes agreed upon with the Gulf Cooperation Council states, as well as levying additional taxes on carbonated drinks and cigarettes.

The budget announcement showed the kingdom ran a record deficit of SAR 367 billion riyals in 2015.

In 2016, the government has projected spending of SAR 840 billion, down from SAR 975 billion in 2015, and revenues of SAR 514 billion, down from SAR 608 billion in 2015. Oil prices have plummeted over the past 18 months straining the government’s finances at a time when it is leading a coalition military campaign in Yemen.

The government said that changes to energy and utilities prices is aimed at achieving efficient use of energy and water and the conservation of the kingdom’s resources. It also reiterated that it would have a limited impact on lower- and middle income citizens.

The collapse in oil prices has forced the government to draw on reserves, issue bonds for the first time since 2007 and cancel or scale down some state projects. Oil receipts represent 90 percent of Saudi Arabia’s state revenue.