In a bid to reduce the budget deficit that has been growing as crude prices have been falling, Saudi Arabia may cancel projects worth over US$20 billion, Bloomberg reported on Tuesday, citing people familiar with the plans.
The kingdom, OPEC’s biggest oil producer, is currently reviewing projects valued at a total spending of US$69 billion (260 billion riyals) and may drop one-third of them. Killing off a third of the projects would benefit the budget for a few years, the sources said.
Saudi Arabia is also planning to reshuffle ministries as it seeks to streamline spending, with the oil revenues for the economy dropping with the low crude prices.
At the end of last year, Saudi Arabia resorted to levying new taxes and reducing government subsidies for water, electrical power and even gasoline, trying to shore up the widening budget gap that had opened with the oil price crash. Saudi Arabia’s deficit was then around 16 percent of its gross domestic product.
Last month, signs emerged that the Saudi economy was stabilizing after the government implemented reforms in order to address a fiscal and economic crisis. The IMF forecasts the Saudi budget deficit would narrow from 13 percent of GDP in 2016 to 9.6 percent in 2017, a dramatic improvement from the 16-percent deficit from 2015.
Saudi Arabia has also launched an economic plan to diversify the country away from crude oil as the sole source of revenue. That involves taking a small slice of state-owned Saudi Aramco public, and using the proceeds to invest in non-oil sectors of the economy.
Still, Saudi Arabia is not giving up on its precious revenue source, and may have well set a fresh output record in August, according to last week’s Reuters survey.
By Tsvetana Paraskova for Oilprice.com
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