Dubai: Saudi Arabia’s economy, hit hard by a sharp decline in oil prices, on Monday an announced 840 billion riyal (Dh822 billion) spending plan for 2016.

The budget deficits for 2015 soared to 367 billion riyals this year. The government plans to cut the deficits to 326 billion riyals (13 per cent of GDP) in 2016 through a combination of spending cuts and augmenting of additional revenue sources other than oil, the finance ministry said, adding that it would review government projects to make them more efficient and ensure they were necessary and affordable.

Next year’s budget projects spending of 840 billion riyals is down from 975 billion spent this year. The original budget plan for 2015 projected a spend of 860 billion riyals. However the actual spending last year was 14.5 per cent less than 2014’s spend of 1.14 trillion riyals.

“Saudi Arabia’s 2016 budget sees planned expenditure being reduced by 2.3 per cent from the 2015 budget. We had expected a pullback in spending [and measures to increase revenue] with oil prices remaining weak and the marked widening in the 2015 fiscal deficit. We believe that the actual fall in expenditure will be sharper than implied in the budget,” said Monica Malik, Chief Economist, Abu Dhabi Commercial Bank.

In 2015, budget deficit was approximately 16 per cent of GDP. In 2015, state spending reached 13.4 per cent higher than expected[860 billion riyals] due to the two salary bonus[s] after King Salman took to the throne and also expansion/renovation of religious sights in Mecca & Medinah,” said Alp Eke, Director, Senior Economist at National Bank of Abu Dhabi.

Saudi government revenues next year are forecast at 514 billion riyals, down from revenues of 608 billion riyals in 2015. This year’s original budget plan envisaged 715 billion riyals of revenues. “Last year the government revenues were 15 per cent less than the original target, due to reduced government revenues from oil and other sectors,” said Eke.

According to the Saudi government, the recorded budget deficit for 2015 is “an acceptable figure under the circumstances” and much lower than the market expected (International Monetary Fund expected 20 per cent of GDP.

In 2015, so far Brent average for year to date is around $53.7 and oil sector constitutes around 87 per cent of government revenues, 75 per cent of exports.

For 2016, the Saudi King announced that all the projects from previous budgets will be given priority and subsidies for water, electricity, petroleum products will be under review.

According to the government subsidy reform will have limited impact on lower- to middle-income citizens. Introducing value added tax (VAT) is considered, but must not be a unilateral decision in order not to damage competitiveness of Saudi with respect to other GCC nations.

The expenditure plan for 2016 is nearly 14 per cent less than previous year. Military Spending constitutes 25 per cent of the budget and education and training constitutes 23 per cent.

Even though an oil price estimate is not announced, it looks like the Saudi government is expecting the Brent to average e around $50-55 (Dh183-202) range during 2016. Public debt for 2015 is estimated to reach 142 billion riyals (5.8 per cent of GDP) up from 44 billion riyals in 2014, (1.6 per cent of GDP). In 2016, budget deficit is expected to be financed through incomes from foreign assets and borrowing from international and local markets. In 2016, debt to GDP ratio is expected to rise to approximately 12 per cent.