Saudi Arabia has asked state agencies to submit proposals for cuts of at least 20% to their budgets in a fresh austerity drive to cope with a sharp drop in oil prices, four sources familiar with the matter said, Trend reports with reference to Reuters.
They said the request was made more than a week ago due to concerns about the impact of the coronavirus epidemic on crude markets and ahead of the collapse of an oil output deal between OPEC and its allies on Friday.
One of the sources told Reuters that when the budget requests were sent, Saudi officials had been anticipating difficult talks with Russia over the need for deeper output curbs to stabilize markets. Moscow did reject the proposal, triggering a war for market share between the two countries which has sent crude prices plummeting.
“The oil market was already down due to the coronavirus impact on demand from China, plus there were communications at the (Saudi) sovereign level and the Russians weren’t positive,” the source said.
The Saudi finance ministry instructed government agencies to submit proposals for cuts of between 20% and 30% in their 2020 budget, the four sources said.
The foreign ministry has already implemented a 20% cut, one of the sources said, adding that the cuts will not impact salaries but projects could be postponed and contracts yet to be awarded could be delayed.
The foreign ministry referred Reuters request for comment to the finance ministry which did not respond.
Saudi Arabia, OPEC’s de facto leader and the world’s top oil exporter, relies heavily on crude revenues. The International Monetary Fund has said Riyadh needs oil at $80 a barrel to balance its 2020 budget, which carries a deficit of 187 billion riyals ($50 billion).
Crude prices LCOc1 were at $38.48 a barrel at 0418 GMT Wednesday.