By Courtney Trenwith
Saudi billionaire criticises largest-ever budget deficit, calls for spending to slow as oil prices plummet
Saudi billionaire businessman Prince Alwaleed bin Talal has again publicly criticised the kingdom’s fiscal policy after the government’s 2015 budget showed its largest ever deficit due to the slump in oil prices.
"We have reached the danger point... after starting to withdraw from the reserves," Prince Alwaleed said in a letter addressed to the finance minister and quoted by AFP.
Saudi Arabia has been forced to dip into its vast reserves of an estimated $750 billion as oil revenues significantly decline.
Prince Alwaleed, who has called for the kingdom to create a sovereign wealth fund and warned that its reliance on oil was “wrong and dangerous”, estimated a total of $53 billion would be withdrawn from fiscal reserves during 2014 and 2015 because the government failed to contain spending.
The world's largest crude exporter and lead producer of the Organisation of the Petroleum Exporting Countries (OPEC) announced on December 25 an expansionary 2015 budget with the largest-ever deficit of $38.6 billion.
It projected spending at $229.3 billion, up 0.6 percent from 2014's estimates, and revenues of $190.7 billion, sharply down from $228 billion, creating the $38.6 billion deficit.
It also said it estimates the 2014 actual budget deficit to be $14.4 billion as both spending and revenues far exceeded projections.
Much of the spending is on the kingdom’s large infrastructure program, aimed at boosting living standards of the developing nation, although it also includes significant subsidies for essential services and publicly-owned companies.
The budget assumes an oil price of about $60, according to analysts quoted by Reuters.
In past years, Saudi budgets commonly based their calculations on oil prices far below current levels. For example, the 2014 budget assumed an oil price below $70; when the budget plan was announced, Brent crude was trading at $111.
Oil prices have almost halved since June to below $60 a barrel.
Prince Alwaleed, a member of the Saudi ruling family and the wealthiest Arab private investor, said Riyadh should not have let spending rise above projections, especially after oil prices began to decline.
If the government had contained last year's spending within projections, a surplus of at least $50 billion would have been posted, he said.
Oil income contributes about 90 percent of public revenues in Saudi Arabia, which pumps about 9.6 million barrels per day.
Prince Alwaleed also criticised the way Saudi reserves were invested, because most of it was in US and European bonds, with low yields at about 2.4 percent annually. The reserves are currently managed by the Saudi Arabian Monetary Agency or the central bank.
Prince Alwaleed has called for the creation of an independent sovereign wealth fund to invest the reserves and increase the returns to about 7-8 percent.For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.