The recent plunge in oil prices will not have a direct impact on Saudi Arabia’s budget as the Kingdom takes precautions to handle all possibilities when planning its finances, finance minister Ibrahim Alassaf was quoted as saying.
Asked by Saudi newspaper Okaz if cheaper oil could have a direct impact on next year’s budget or government spending, Alassaf replied, according to the newspaper’s Monday edition:
“The global oil situation usually in one way or another affects countries’ revenues and debts, but the Kingdom has always been keen on building its budgets on estimates that take all possibilities into consideration.” He did not elaborate.
With the price of Brent crude oil now below $80 a barrel, down from around $115 in June, the Saudi government may post a budget deficit next year. The oil price which the government needs to balance its budget rose to $89 a barrel in 2013, the International Monetary Fund has estimated.
However, economists believe the country’s huge fiscal and foreign reserves – the central bank’s net foreign assets exceed $700 billion – mean financing that deficit will be easy, and the Kingdom will be able to avoid any sharp cutback in spending if it chooses to do so.
The country’s 2015 budget plan is expected to be announced in late December. Its original 2014 budget projected spending would rise a modest 4.3 per cent from the 2013 plan to SAR855 billion ($228 billion), the slowest rate in a decade, suggesting the Kingdom was already starting to curb expenditure after years of huge increases.
The 2014 budget conservatively projected state finances would exactly break even this year. The ministry did not specify the average oil price on which that calculation was based, but since the average price so far this year is above $100, Saudi Arabia still looks likely to post a budget surplus for 2014.