Business

AMMAN — Net investment by non-Jordanians in 2015 increased by JD10.6 million compared to a JD22.2 million decline in 2014, according to the Amman Stock Exchange (ASE) data.

ASE statistics showed that as shares bought by non-Jordanians in 2015 amounted to JD981.7 million, constituting 28.7 per cent of the total trading volume.

The value of shares sold totalled JD971.1 million.  Arab investors in 2015 bought JD894.3 million worth of shares, constituting 91.1 per cent of non-Jordanian purchases in the ASE.

Non-Arab investment in the stock exchange stood at JD87.4 million, or 8.9 per cent. Last year, Arab share sales reached JD873.5 million or 90 per cent of the total non-Jordanian sales. Non-Arabs sold shares worth JD97.6 million, the ASE statistics revealed.

Non-Jordanians' contributions to the companies listed on the ASE up to the end of December constituted some 49.5 per cent of the total market value, 36.8 per cent of which for Arabs and 12.7 for non-Arabs.

AMMAN — Remittances of Jordanian expatriates rose by 1.9 per cent during the first 11 months of 2015 compared to the same period of 2014, the Central Bank of Jordan announced Monday.

The total remittances amount to $3.495 billion in the first 11 months of 2015 compared to $3.431 billion in the first 11 months of 2014.

LONDON — With crude prices at 11-year lows, the world's biggest oil and gas producers are facing their longest period of investment cuts in decades, but are expected to borrow more to preserve the dividends demanded by investors.

At around $37 a barrel, crude prices are well below the $60 firms such as Total, Statoil and BP need to balance their books, a level that has already been sharply reduced over the past 18 months.

International oil companies are once again being forced to cut spending, sell assets, shed jobs and delay projects as the oil slump shows no sign of recovery.

US producers Chevron and ConocoPhillips  have published plans to slash their 2016 budgets by a quarter. Royal Dutch Shell has also announced a further $5 billion in spending cuts if its planned takeover of BG Group goes ahead.

Global oil and gas investments are expected to fall to their lowest in six years in 2016 to $522 billion, following a 22 per cent fall to $595 billion in 2015, according to the Oslo-based consultancy Rystad Energy.

"This will be the first time since the 1986 oil price downturn that we see two consecutive years of a decline in investments," Bjoernar Tonhaugen, vice president of oil and gas markets at Rystad Energy, told Reuters.

The activities that survive will be those that offer the best returns.

But with the sector's debt to equity ratio at a relatively low level of around 20 per cent or below, industry sources say companies will take on even more borrowing to cover the shortfall in revenue in order to protect the level of dividend payouts.

Shell has not cut its dividend since 1945, a tradition its present management is not keen to break. The rest of the sector is also averse to reducing payouts to shareholders, which  include the world's biggest investment and pension funds,  for fear investors might take flight.

ExxonMobil and Chevron benefit from the lowest debt ratios among the oil majors while Statoil and Repsol have the highest debt burden, according to Jefferies analyst Jason Gammel.

Few large decisions

With only a handful of major projects approved in 2015, including Shell's Appomattox development in the Gulf of Mexico and Statoil's giant $29 billion Johan Sverdrup field in the North Sea, 2016 is also likely to see few large investment decisions.

Projects that could be green-lit include BP's Mad Dog Phase 2 in the Gulf of Mexico, which the company now expects to cost less than $10 billion, around half the original estimate, and Chevron's expansion of the Tengiz project in Kazakhstan, according to Gammel.

Industry-wide, costs will be cut by reducing the size of projects, renegotiating supply contracts and using less complex technology.

After rapidly expanding in the first half of the decade when oil prices were above $100 a barrel, companies are now expected to focus on the most profitable activities, said Brendan Warn, oil and gas equity analyst at BMO Capital Markets.

"Companies want to reduce their range of activity and pick those with the highest returns on capital," Warn indicated.

Shell, which plans to complete its $54 billion acquisition of BG in February, intends to focus on the attractive liquefied natural gas (LNG) market and on deep water oil production, especially in Brazil, both areas in which BG is a leader.

With similar priorities in mind, BP is increasingly focused on the Gulf of Mexico and Egypt, where it approved a $12 billion development in 2015.

While tens of thousands of jobs have already been cut in 2015, more redundancies are expected this year as companies narrow their focus, Warn said.

On top of reducing spending by scrapping and delaying projects, oil majors will see costs come down as contractors agree to further price reductions. 

For example, the annual cost of hiring a drilling ship fell to an average of $332,000 in 2015, compared with $405,000 in 2014, according to Rigzone, which collects industry data.

The drop in investment bodes badly for services and contractor companies, which are seeing their work dry up.

Hold your nerve

But with fewer projects approved, fewer fields developed and less maintenance work undertaken, companies are putting their growth at risk.

"You've got to hold your nerve. If you cut too deeply, it is very, very difficult to take advantage of the price rebound when it comes," a senior official at a European oil major told Reuters.

Tumbling oil prices have cut billions of dollars from oil companies' revenue streams, although strong profits from refining have softened the blow for most.

And while their in-house oil and gas production growth comes under pressure, companies might opt to acquire rivals with less resilient balance sheets, as with Shell's proposed acquisition of BG.

"In the second half of 2016, if we see price stabilisation, I expect companies will be looking to replace reserves inorganically, by making acquisitions," Warn said.

Separately, Chief Executive Bob Dudley warned Saturday that struggling oil producers could suffer even more pain in 2016 with further plunges in already record-low prices.

"A low point could be in the first quarter," Dudley told BBC radio.

Oil prices fell by 34 per cent in 2015, battered by prolonged global oversupply and a slowdown in energy-hungry China's economy.

Dudley predicted that prices could stabilise towards the end of the year, but would remain low for the forseeable future.

"Prices are going to stay lower for longer, we have said it and I think we are in this for a couple of years. For sure, there is a boom-and-bust cycle here," Dudley indicated.

Prices have particularly slumped since December 4 when the Organisation of the Petroleum Exporting Countries (OPEC) decided against limiting production as members fight to keep market share.

Potentially adding to the supply worries was action by the US Congress last month to end the 40-year-old ban on exports of crude oil produced in the country.

In a related development, data showed that Russia pumped a record 534 million tonnes of crude oil in 2015 even as it reeled from a fall in oil prices caused by a supply glut.

The country's oil and gas condensate production last year increased 1.4 per cent year-on-year, with output reaching 10.73 million barrels per day, a post-Soviet record, according to data cited by Interfax news agency. 

The slide in oil prices and Western sanctions over Moscow's role in the Ukraine crisis have pummelled the oil-dependent Russian economy in recent months

The ruble lost around half of its value in 2014 but recovered slightly as energy prices stabilised last year.

But the recent renewed slump in oil prices, with Brent crude falling to an 11-year low last month, casts a shadow on the prospect of economic recovery. 

"All states, including OPEC countries, have concentrated on increasing their output and turning out as much oil as possible not to lose their market niches, not taking note that they are driving prices down," energy consultant Mikhail Krutikhin said Saturday on Russian radio. "It appears that Russia is also following this path."

Russia's central bank predicted that if oil prices remain at their current level, gross domestic product could shrink 2 per cent in 2016. 

President Vladimir Putin assured at his annual press conference last month that the country was prepared for any economic situation, despite the volatility in oil prices.

Russia's 2016 budget had been calculated on the basis of an oil price of $50 per barrel, a figure Putin said was an "optimistic" assessment of the situation, with the price now hovering around $37.

PARIS — French telecoms operator Orange may soon face a crucial choice: shore up its position at home by gobbling up a competitor or expand its presence abroad by making a play for Telecom Italia.

While talks have reportedly begun to take over the telecom assets of the Bouygues conglomerate, thus cutting the number of mobile operators in France to three, the time may be ripe to pounce on Telecom Italia, as two French companies have been increasing their stakes in the operator.

"Orange has a choice to make, to consolidate the French market or consolidate its position as a global operator with major scale in Europe, as doing both could possibly be complex," said Thomas Coudry, a Paris-based telecoms analyst at Bryan, Garnier & Co.

"But it is certain that Telecom Italia is an interesting target for many, not only Orange," he added.

Italy is seen as an appealing market for operators as it has been slower in rolling out high-speed internet, and Telecom Italia has a relatively open capital structure that could see investors take control.

Orange has so far refused to confirm its interest in Telecom Italia, as it has to comment on talks on taking over Bouygues Telecom.

But sources say it may be working on a way to do both.

"Our merger and acquisition services are working day and night to try to find a solution for January with the scenario being explored that would have Bougyues hold 15 per cent of the new company, the French state 19 per cent and employees four to five per cent," said a union source. 

The solution for the merger would be an exchange of shares, which would allow Orange to hold on to cash to seek other acquisition prey, perhaps in Italy.

That is why one Paris-based analyst, who spoke only on condition on anonymity, said the two operations "should be viewed together".

In other words, Orange could be preparing a two-course meal of Bouygues Telecom followed by Telecom Italia.

"Orange is committed to consolidating the European market and Italy is a beautiful opportunity and the company knows it," indicated the analyst. "It is perfectly possible that an approach for Telecom Italia would be made together with Vivendi." 

Vivendi, which was previously active in the French telecoms market with the mobile and home internet operator SFR, owns a 20 per cent stake in Telecom Italia.

'Three cushion bank shot'

The possibility of Orange snapping up Telecom Italia has raised concerns in Italy, including in the government, which is not enthused about the idea of another national champion being acquired by a foreign company.

"They are right to be afraid as each time an Italian company is bought, the heart of its skills emigrate to where its shareholder is located," said Alessandro Pansa, a professor of finance at Luiss Business School in Rome.

"But the government can't do much, it is the consequence of 10 years of poor management of the Italian telecoms market," he indicated.

But that doesn't mean that nothing can be done to make Telecom Italia harder to take over, which is what the company's current management tried to do last month.

At a general shareholders meeting, it sought to have the company's preferred shares, which get better dividend payments but hold no voting rights, converted into regular voting shares.

Vivendi succeeded in blocking the project, which would have diluted its shareholding and by creating more voting shares made any takeover costlier.

"But if someone really has a strategic interest in such a deal, a couple of hundred million euros won't make a difference," said Pansa.

What would make a difference is getting regulatory approval for the mergers. If the European Commission is open to consolidation on the international level, it is concerned about mergers in national markets.

"The present European Union Competition Commissioner Margrethe Vestager is very concerned that if the number of market players is further reduced, in individual countries, consumers will end up paying higher prices, and investment in networks will suffer," said  Anne MacGregor, a lawyer specialised in mergers and acquisitions at the Cadwalader firm in Brussels.

Coudry shares a similar view that the commission appears to be taking a harder line on mergers within countries.

"But on the pan-European level, on the other hand, it is sending rather favourable messages about building continental giants capable of competing globally," he said

A wild card in an Orange bid for Telecom Italia is the investment into the company by Xavier Niel, the owner of the upstart French mobile and Internet operator Free Telecom.

With a 15 per cent stake in Telecom Italia, Niel "is in a position to influence" the terms of a sale of the company, said the Paris analyst who requested anonymity.

He added that Orange faces what in billiard terms would be a "three cushion bank shot" as Niel is interested in "what Free would get in terms of frequencies and infrastructure" as part of any merger between Orange and Bouygues.

KUWAIT CITY — Stock markets in the energy-rich Gulf states ended 2015 in negative territory on Thursday, following a massive decline in oil prices and regional turmoil.

The Saudi stock market, the largest in the region, led the slide by shedding 17 per cent in 2015 followed by Dubai which dipped 16.5 per cent.

The market value of the seven bourses dropped by $110 billion to $930 billion in 2015.

Gulf Cooperation Council (GCC) states were forced to cut back this year after oil prices fell by more than 60 per cent since mid-2014 to below $40 a barrel.

GCC nations Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates all depend on oil for more than 70 per cent of their revenues.

"The persistent decline in oil prices, though expected, hit the domestic economies very hard," M.R. Raghu, head of research at Kuwait Financial Centre Markaz, said. "It negatively affected spending and private investors."

"Stock markets were also impacted by geopolitical factors which pushed investor confidence down," he added.

The Saudi-led military intervention against Iran-backed Houthi rebels in Yemen, conflicts in Iraq, Syria and Libya, and attacks by the Daesh group all caused instability in the Gulf states. 

The Chinese slowdown and the hike in US and domestic interest rates also fuelled the slide, Raghu continued, with most losses taking place in the second half of the year.

Trading was highly volatile on most bourses, which dropped to multi-year lows.

And there is no cause for optimism for next year, Raghu noted.

"2016 will be a very challenging year," he indicated. "Nobody is hopeful of any recovery in oil prices, which are expected to remain below $50 a barrel, and corporate earnings are expected to be flat."

The Saudi Tadawul All-Shares Index (TASI), the largest bourse in the region, shed 17.06 per cent at 6,911.76 points, dropping for the second year in a row.

During December, the TASI dropped to a three-year low, despite new rules allowing foreign institutions to trade directly on the Saudi bourse.

The market was pulled down by the leading petrochemicals sector, which dipped 27 per cent. Most of the remaining 15 sectors also dropped.

The Dubai Financial Market Index posted its first annual loss after four years of sustained gains, ending the year down 16.5 per cent at 3,151.00 points.

The Abu Dhabi Securities Exchange was the best performer among the Gulf bourses, but still shed 4.5 per cent to finish the year on 4,307.3 points.

The Qatar Exchange, the second largest in the Gulf, fluctuated sharply during the year to close at 10,429.4 points, down 15.1 per cent. 

The Kuwait Stock Exchange dropped 14.1 per cent to close on 5,615.12 points, after dipping to an 11-year low in December.

The Muscat Securities Market ended 2015 down 14.8 per cent at 5,406.22 points, while the tiny Bahrain bourse dropped by a similar percentage to close on 1,216 points.

JAKARTA — Southeast Asian nations officially launched a European Union (EU)-inspired economic bloc Thursday aimed at boosting the region's trading clout and attracting more investment, but analysts said a true single market was still a long way off.

The ten-member Association of Southeast Asian Nations (ASEAN) hailed the project as a "milestone" in combining the economic force of a resource-rich and growing market of more than 600 million people. 

The vision for the ASEAN Economic Community (AEC) is a single market with a free flow of goods, capital and skilled labour, which should help the region compete with the likes of China for foreign investment. 

The new bloc "will contribute significantly to the region's growth and create developmental opportunities for all", said Vivian Balakrishnan, the foreign minister of ASEAN member Singapore.

But experts say such an idea is difficult, if not impossible, to achieve in a region marked by extremes in development levels, democratisation, and institutional capability. 

The official launch of the AEC has no practical effect, and diplomats have said ASEAN, regularly criticised for a lack of concrete achievements, was keen not to miss its own deadline of 2015, set several years ago.

Research group Capital Economics said in a note that the establishment of the AEC was "no game changer", and it was likely to fall short in tackling major challenges such as reducing non-tariff barriers and improving infrastructure.

"ASEAN, with its tradition of non-interference into the affairs of member countries, an absence of penalties for non-compliance, and a lack of a powerful central bureaucracy, is ill-equipped to tackle these obstacles," it indicated.

John Pang, a senior fellow at Singapore's S. Rajaratnam School of International Studies, said there would be only "slow and incremental progress" in integrating the economies of Southeast Asia.

"The AEC will not be raising the curtain on any radical change," he wrote in a commentary.

Diplomats have conceded the single market vision is many years away, but insist the project will help change mindsets and provide momentum.

ASEAN leaders signed a declaration to establish the AEC at the group's annual summit in November but there was no official ceremony on Thursday to mark the new bloc's establishment.

Southeast Asia has already made progress on lower-hanging fruit like cutting tariffs and removing other hurdles such as clashing customs systems but significant non-tariff and other barriers remain.

ASEAN includes wealthy Singapore, one of the world's most developed countries, oil-rich Brunei, developing states such as Malaysia, Indonesia, Thailand, the Philippines and Vietnam, and poorer nations like Cambodia, Laos and Myanmar.

Its members range from free-wheeling to controlled democracies, communist-ruled states and an absolute Islamic monarchy.

Although ASEAN's plans were inspired by the developed single market of the 28-member EU, officials insist they want to pursue integration in a way suitable to the region's circumstances, and have ruled out a common currency.

DUBAI — An austere state budget released by Saudi Arabia this week is likely to mark the end of an era for the Gulf's lavish cradle-to-grave welfare systems, encouraging governments around the region to roll back costly handouts to their populations.

Struggling to narrow a huge budget deficit created by low oil prices, Riyadh on Monday announced government spending cuts, reforms to energy subsidies and a drive to raise revenues from taxes and privatisation next year.

Gulf governments have tightened their belts in the past during periods of slumping oil prices. But the Saudi budget went further than usual by including steps that will directly hit the purchasing power of citizens — in particular, raising domestic gasoline, kerosene, water and electricity prices.

It was the biggest step a rich Gulf Arab oil exporting state has taken so far to change an arrangement in which governments heavily subsidise fuel, water, food and other essentials for their populations in exchange for social peace.

Because of Saudi Arabia's role as the political leader of the Gulf Arab states and the biggest Arab economy, other Gulf governments are now expected to follow suit as they impose their own austerity programmes in response to the prospect of years of shrunken oil and gas revenues.

"The initiatives announced in the Saudi budget will be game-changers in the Gulf," said Kristian Coates Ulrichsen, a political scientist at Rice University's Baker Institute in the United States.

"If the reforms can be implemented without a significant backlash, that would boost the political courage of governments that hitherto have been hesitant to introduce such sensitive changes," he added.

In postings on Twitter, ordinary citizens in the Gulf also saw the Saudi budget as signalling tougher times for the region.

"Saudi Arabia's budget deficit is terrifying! We fear that it will be echoed around the Gulf," tweeted a Kuwaiti high school teacher who identified himself as Bu Dujan, noting that fuel price hikes in the region would raise the costs of goods.

Political will

Some countries had already launched reforms before Riyadh made its move. 

In August, the United Arab Emirates (UAE) abandoned a system of fixed gasoline prices in favour of one linked to global oil prices; gasoline has barely risen, but the way is clear for it to do so in future when oil eventually recovers.

Bahrain more than doubled prices of beef and chicken in October as it removed subsidies on them, and this week the Bahraini cabinet approved a new system for diesel and kerosene that would allow prices to rise gradually in coming years.

Bigger changes are on the way. Governments in Bahrain, Kuwait, Qatar and Oman, which face financial squeezes of varying intensity, have all said they are conducting broad reviews of their subsidy systems, though they have not yet committed to specific reforms.

Because of political sensitivities, governments are likely to move cautiously; Saudi officials stressed this week that they wanted to minimise the impact on the living standards of lower- and middle-income people.

Although the Saudi price of 95 octane gasoline jumped 50 per cent, it remained very low by global standards, at 0.90 riyal ($0.24) per litre. Water and electricity price hikes were structured to impose most of the burden on big corporate users.

Nevertheless, Riyadh made clear that the price hikes were only the first in a series, saying it would adjust subsidies for water, electricity and petroleum products over five years.

Once governments start cutting subsidies, it may be hard for them to resist the huge savings available from more reforms. 

The International Monetary Fund estimates Riyadh spent $107 billion on energy subsidies this year, more than its entire budget deficit of $98 billion.

"We think that the Saudi consumer fuel price changes will be the first of many to come over the next few years around the Gulf,” said Mohammed Al Hajj, associate at investment bank EFG Hermes in Dubai.

In the wake of the Saudi budget, Kuwait's Finance Ministry Undersecretary Khalifa Hamada told the Al Qabas newspaper that his ministry would present a proposal to "rationalise" subsidies to an economic committee in the cabinet at the end of this week.

The proposal would save the government 6.2 billion dinars ($20.5 billion) over the next three years, Hamada indicated, estimating that without reforms, Kuwait would spend 16 billion dinars on subsidies over three years.

Saudi tax policy is also expected to influence the Gulf, because of the close ties between the region's economies.

In its budget announcement, the Saudi finance ministry said it planned to introduce value-added tax in coordination with other countries in the region — a measure that would directly affect the spending power of ordinary consumers, even if it is mitigated by exemptions for items such as food.

Officials have said countries would need to introduce the tax jointly to avoid smuggling and loss of economic competitiveness, but Gulf Arab governments have been discussing the idea inconclusively for years.

Previously, the main impetus for the tax came from the UAE. Saudi Arabia's decision to endorse it publicly means the project looks likely to go ahead in the next few years.

Separately, an economic report said Wednesday that Saudi economic growth is set to slow further in 2016 after the heavyweight in the Organisation of Petroleum Exporting Countries announced record deficits due to the slump in oil prices.

Jadwa Investment forecast the Saudi economy would grow by just 1.9 per cent next year, down from 3.3 per cent this year and 3.5 per cent in 2014.

The world's top oil exporter announced Monday a record budget deficit of $98 billion in 2015 and projected a shortfall of $87 billion next year. 

Jadwa expects the oil sector to grow by a meagre 0.9 per cent on an average crude production of 10.2 million barrels per day.

To finance the budget, the Saudi government withdrew from its huge fiscal reserves and issued bonds on the domestic market.

The reserves dropped from $732 billion at the end of 2014 to $628 billion in November, Jadwa pointed out.

The kingdom is estimated to have issued domestic bonds worth around $30 billion since July, raising public debt to $38 billion, or 5.8 per cent of gross domestic product (GDP), Jadwa indicated.

This year also saw the first deficit in the kingdom's current account since 1998, at $41.3 billion or 6.2 per cent of GDP, it said. The slide is expected to continue next year.

To counter the shortfalls, Riyadh introduced unprecedented hikes to the prices of fuel, electricity and other utilities by as much as 80 percent, reducing decades-old subsidies.

Jadwa estimated the cost of energy subsidies at $61 billion this year, of which diesel accounted for $23 billion and gasoline for $9.5 billion.

Jadwa estimated the oil price used to calculate oil income in 2016 at $40.3 a barrel, down from $64.8 a barrel this year. The actual price of Saudi oil in 2015 averaged $49 a barrel.

It said that investment spending in next year's budget was cut by 19.3 per cent to $59 billion. 

Revenues in 2015 dropped to $162 billion, the lowest since the global financial crisis in 2009, due to a massive $123 billion fall in oil revenues.

The contribution of oil income to revenues dropped to just 73 per cent in 2015, from an average of 90 per cent in the past decade.

Jadwa expected the Saudi government to announce a National Transformation Programme in January to outline further plans to boost non-oil income.

FRANKFURT — Global economic growth will be "disappointing and patchy" in 2016, the head of the International Monetary Fund (IMF), Christine Lagarde, wrote in an article published in the German business daily Handelsblatt on Wednesday. 

Rising interest rates in the United States, the economic slowdown in China, the persistent fragility of the financial system in a number of countries and the effects of low oil prices on producer countries "all mean that global growth in 2016 will be disappointing and patchy", Lagarde wrote. 

"And the medium-term outlook has clouded over, too, because low productivity, ageing populations and the fallout from the global financial crisis are putting the brakes on growth," she continued. 

The US Federal Reserve (Fed) rang in the end to an era of ultra-cheap money by raising its key interest rates earlier this month. 

"The Fed is treading a tightrope: normalising interest rates, while at the same time seeking to avert any risk of disturbance on the financial markets," Lagarde said. 

Generally speaking, outside the highly developed economies, "other countries are better prepared than in the past for higher interest rates," she wrote. 

"Nevertheless, I'm worried about their ability to absorb shocks" that could be triggered by tighter monetary policy, Lagarde cautioned.

"A lot of countries have taken on more debt, much of which is denominated in US dollars," she argued. 

"Rising interest rates and a stronger dollar could push companies into insolvency and banks and governments could become infected," she warned. 

Earlier this month, the United Nations cut its forecast for global economic growth in 2015 by 0.4 percentage point to 2.4 per cent, largely due to lower commodity prices, increased market volatility and slow growth in emerging market economies.

There will be a slight pick up next year, the world body said in its annual World Economic Situation and Prospects report.

"The world economy is projected to grow by 2.9 per cent in 2016 and 3.2 per cent in 2017, supported by generally less restrictive fiscal and still accommodative monetary policy stances worldwide," the UN said in a statement accompanying the report.

The IMF also said in October that it had cut its global growth forecast for this year by 0.2 percentage point to 3.1 per cent. The IMF also cited declining commodity prices and weaker economic prospects for large emerging market economies.

"Given the much anticipated slowdown in China and persistently weak economic performances in other large emerging economies, notably the Russian Federation and Brazil, the pivot of global growth is partially shifting again towards developed economies," the UN statement said.

The UN report indicated that growth in developing and transition economies was at its weakest since the global financial crisis of 2008-09.

In addition to macroeconomic uncertainties and weak commodity prices, the UN report cited rising volatility in exchange rates and capital flows and stagnant investment and productivity growth as factors behind slowing global growth.

DUBAI — Saudi Arabia's planned cuts in spending and energy subsidies signal that the world's largest crude exporter is bracing for a prolonged period of low oil prices.

The heavyweight member in the Organisation of Petroleum Exporting Countries (OPEC) shows no signs of wavering in the long-term oil strategy it has orchestrated since last year. Instead, it appears willing to continue tolerating cheap crude to defend market share and wait for the market to balance without cutting supplies, oil sources and analysts say.

In one of the strongest signals that the kingdom will stay the course despite the impact on its finances, Saudi Aramco's Chairman Khalid Al Falih said it could outlast others.

"We see the market balancing sometime in 2016, we see demand ultimately exceeding supply and soaking up a lot of the excess inventory and prices in due course will respond regardless of when and by how much," Falih told a news conference late on Monday detailing next year's budget.

"Saudi Arabia more than anyone else has the capacity to wait out the market until this balancing takes place," he said.

According to analysts, the plans announced on Monday to shrink a record state budget deficit with spending cuts, reforms to energy subsidies and a drive to raise revenues from taxes and privatisation showed Riyadh was expecting lower revenues.

"We don't see any changes to Saudi Arabia's oil policy — in the context of oil production," said Amrita Sen, chief oil analyst at consultancy Energy Aspects.

"The budget changes suggest they are expecting oil prices to stay low for some time and the reforms are a small step towards addressing that," he added.

Belt-tightening

The 2016 budget and reforms announcements marked the biggest shake-up to economic policy in the kingdom for over a decade and aimed to cut the government deficit to 326 billion riyals, down from 367 billion riyals or 15 per cent of gross domestic product (GDP) in 2015.

Next year's budget projects spending of 840 billion riyals, down from 975 billion riyals spent in 2015.

The government also said it was hiking prices for fuels, water and electricity as well as gas feedstock used by industry, as part of politically sensitive subsidy reforms.

"Saudi Arabia can either spend its way out of the current scenario or start belt-tightening. In the past, the country has spent lavishly on health, education and infrastructure in difficult times knowing that oil prices will be supportive," said Asim Bakhtiar, head of research and investment advisory at Saudi Fransi Capital.

"If oil has entered a down cycle then belt-tightening will prevail," he added.

Falih, who is also the health minister, became chairman of Aramco, the world's biggest state energy firm, earlier this year after more than 30 years in the company.

As one of a handful of Saudi figures whose views are closely watched by traders and analysts for any insight into the kingdom's oil thinking, Falih has long been considered a possible successor to Saudi oil minister, Ali Al Naimi.

His appearance at the news conference with two other ministers, during which he shared his views on oil prices and market assessment, was seen as a possible signal he could be named oil minister when Naimi, 80, eventually retires.

OPEC rolled over its year-long strategy of pumping at will at its December 4 meeting, raising the stakes in its survival-of-the-fittest market strategy.

Riyadh was the driving force behind OPEC's shift in policy last year, rejecting calls to reduce output to support oil prices that are trading this month at their lowest since 2004. It chose instead to defend market share against higher-cost-rivals.

Falih noted that the policy had borne fruit.

"Over the last year we have seen the down cycle in the oil markets have a significant impact on both supply and demand. Supply has plateaued in North America and started declining by significant amounts, and we expect that to continue or perhaps accelerate in 2016," he said.

Brent was trading at around $36.85 a barrel on Tuesday, a sharp drop from a high of $115 a barrel in June 2014 before OPEC's policy shift.

The finance ministry did not disclose the average oil price assumed in its 2016 budget calculations but economists estimated it was about $40 a barrel and saw crude production remaining high at above 10 million barrels per day next year.

"We do not see Saudi Arabia cutting production in order to support upward movement in prices. So far, Saudi policy of gaining market share has worked, with lower prices undercutting both OPEC and non — OPEC competitors in key markets," wrote analysts at Jadwa Investment, a leading Saudi financial firm, in a note on Tuesday. 

Long accustomed to cheap utilities and some of the lowest petrol prices in the world, Saudis woke to a shock Tuesday as authorities made massive subsidy cuts after falling oil prices caused a record deficit.

In a clear departure from its decades-old generous welfare system, Riyadh announced prices would rise on fuel, electricity, water and even plane tickets and cigarettes.

Residents of the oil-rich Gulf kingdom have long enjoyed cheap prices on basic goods and services, but officials made clear that was no longer sustainable after the stunning drop in crude prices over the last 18 months.

"We have to rationalise unnecessary spending. This requires changes to focus on essential expenditures," Finance Minister Ibrahim Al Assaf was quoted as saying Tuesday by the Al Eqtisadiah newspaper.

After years of high spending, authorities moved swiftly to impose unprecedented cuts after announcing Monday a 2015 budget deficit of $98 billion, the largest in Saudi history and a whopping 15 per cent of GDP.

Prices on fuel products were raised by up to 80 per cent as of midnight, including a 50 per cent jump in the price of the most commonly sold petrol to 0.90 riyals ($0.24) per litre.

Vehicles thronged petrol stations in Saudi Arabia Monday evening to fill up tanks at the old rates.

Abu Othman, a 63-year-old motorist, noted that despite the increase, petrol prices remained "reasonable".

"It is natural to expect such measures in these circumstances," he said while filling his car.

'Wrong economic policies' 

The swift action to cut subsidies was unexpected, even if there had been no doubt Saudi Arabia would post a deficit this year.

With oil prices expected to remain low, Saudi authorities also projected a shortfall of $87 billion in the 2016 budget.

Revenues in 2015 dropped to $162 billion, the lowest since the global financial crisis in 2009, due to a massive $123 billion fall in oil revenues.

The contribution of oil income to revenues dropped to just 73 per cent in 2015, from an average of 90 per cent in the past decade.

The budget and price increases dominated talk on Saudi social media on Tuesday, with Twitter user Fahad Al Owain saying many would suffer from the price hikes.

"Rich people can overcome the rises but the poor depend on the government," he wrote.

Another Twitter user, writing under a pseudonym, blamed "wrong economic policies for the record budget deficit".

But others said it was time for Saudis to tighten their belts.

"I believe this budget will teach us the art of rationalising consumption," Twitter user Udai Al Dhaheri wrote.

Authorities announced other measures aimed at reducing Saudi Arabia's reliance on oil revenues by diversifying the economy, including by increasing charges on public services.

Non-oil revenues rose by 29 per cent this year to $43.5 billion, contributing 27 per cent to public revenues. 

But Saudi economist Abdul Wahab Abi Dahesh said much more needed to be done.

"This remains a very small contribution and needs to be increased," he said. "I expect that the government will be able to easily raise non-oil revenues above the 200 billion riyal [$53 billion] mark next year with the introduction of the new fees." 

That would boost non-oil income to around 40 per cent of public revenues, a new landmark for the kingdom.

In a speech to cabinet on Monday, King Salman, overseeing his first budget since taking over the country in January, emphasised the need for diversification.

"This budget represents the beginning of a comprehensive programme to build a strong economy... with various sources of income," he said.

The International Monetary Fund has warned Riyadh that failure to cut spending and implement reforms will eat up the country's fiscal reserves in just five years.

The kingdom withdrew more than $80 billion this year from the reserves, which stood at $732 billion at the end of 2014, and issued bonds worth around $20 billion.

RIYADH/DUBAI — Saudi Arabia, its finances hit by low oil prices, announced plans to shrink a record state budget deficit with spending cuts, reforms to energy subsidies and a drive to raise revenues from taxes and privatisation.

The 2016 budget, released by the finance ministry on Monday, marked the biggest shake-up to economic policy in the world's top crude exporter for over a decade, and includes politically sensitive reforms from which authorities previously shied away.

The plan suggests the kingdom is not counting on a major recovery of oil prices any time soon but is instead preparing for a multi-year period of cheap oil. The International Monetary Fund (IMF) warned in October that Riyadh would run out of money within five years if it did not tighten its belt.

"Our economy has the potential to meet challenges," King Salman said in a speech, adding the 2016 budget launched a phase in which his kingdom would diversify its revenues.

The government ran a deficit of 367 billion riyals ($97.9 billion) or 15 per cent of the gross domestic product (GDP) in 2015, officials said. 

The 2015 deficit is the highest in the history of Saudi Arabia, which relies on oil for 90 per cent of public revenues, but was not as big as some expected.

The IMF had projected the 2015 deficit to be around $130 billion and other reports also put it above $100 billion.

The 2016 budget plan aims to cut that to 326 billion riyals ($87 billion), reducing pressure on Riyadh to pay its bills by liquidating assets held abroad and issuing bonds.

The 2016 budget projects revenues at 514 billion riyals ($137 billion), down from 608 billion riyals ($162 billion) in 2015, when oil revenues accounted for 73 per cent of the total.

Income for 2015 was 15 per cent lower than projections, the lowest since 2009 when oil prices dived as a result of the global financial crisis, and 42 per cent less than in 2014, after oil prices fell by more than 60 per cent since mid-2014 to below $40 a barrel.

The Brent oil price averaged about $54 a barrel this year but is now around $37.

The dive is largely due to Saudi Arabia's own policies and those of other states grouped in the Organisation of Petroleum Exporting Countries (OPEC), which are refusing to cut oil production as they seek to drive less-competitive players, including US shale producers, out of the market

Spending was envisaged at 840 billion riyals ($224 billion), slightly below 2015 projections of $229 billion, and down from 975 billion riyals actually spent this year.

The ministry said it would review government projects to make them more efficient and ensure they were necessary and affordable.

The success or failure of the budget plan will be key to maintaining the confidence of financial markets in Riyadh.

As the deficit has swelled, the riyal has dropped in the forwards market to its lowest since 1999 because of fears Riyadh may eventually have to abandon its peg to the US dollar.

Subsidies

In its budget statement, the ministry said it would adjust subsidies for water, electricity and petroleum products over five years. That is a politically sensitive step since the kingdom has traditionally kept domestic prices at some of the lowest levels in the world as a social welfare measure.

Changes will aim to make energy use more efficient and conserve natural resources, while minimising the negative effects on lower- and middle-income Saudis, the ministry added.

Authorities moved quickly after the budget figures were released, with the official SPA news agency reporting the increase of petrol prices and saying the government would also cut subsidies for electricity, water, diesel and kerosene.

Such subsidies are a highly sensitive issue in Saudi Arabia, where residents have grown accustomed to low utility and fuel costs.

The price of higher-grade unleaded petrol will rise to 0.90 riyals ($0.24) per litre from 0.60 riyals, a hike of 50 per cent, though it remained very low by global standards.

The price of lower-grade petrol will surge by 67 per cent to 0.75 riyals ($0.20) from 0.45 riyals per litre.

National oil conglomerate Aramco said on Twitter it was immediately closing petrol stations until midnight on Monday, when it will resume sales at new prices.

The ministry outlined other reforms including "privatising a range of sectors and economic activities", although it did not give details, and raising taxes on soft drinks and tobacco, without giving a timeline.

It is also considering plans to raise charges on public services and to apply value-added tax (VAT) in cooperation with other Gulf Arab nations, which are facing similar pressure from the oil price drop.

The United Arab Emirates has said it expects a regional VAT to take about three years to introduce.

The economic and fiscal reforms seek to make the budget more sustainable, including a programme to contain spending growth, especially for wages and benefits which accounted for half of the 2015 budget.

Private analysts said markets could react positively to Monday's budget announcement because the 2015 deficit was lower than the 400-450 billion riyals which many investors had feared.

"It seems the levers of fiscal discipline were put into action in the second half of this year, rather than waiting," said John Sfakianakis, regional director of asset manager Ashmore Group in Riyadh.

But GDP growth, which was 3.3 per cent this year, is expected to suffer as state spending cuts hurt the construction industry and higher fuel and electricity prices dampen consumer spending.

"We see real GDP growth decelerating sharply in 2016, albeit remaining positive," said Monica Malik, chief economist at Abu Dhabi Commercial Bank.

The finance ministry did not disclose the average oil price assumed in its 2016 budget calculations but economists estimated it was about $40 a barrel. The figure is an accounting device and does not necessarily mean Riyadh expects oil at that level.

Figures given by Economy and Planning Minister Adel Fakieh indicated the cost of Saudi Arabia's military intervention in Yemen was not a major factor in the budget. 

He said Saudi Arabia had increased its military and security spending in 2015 by about 20 billion riyals because of the conflict.

A quarter of next year's spending, or $57 billion, has been allocated for defence and security expenditures, the ministry pointed out.       

Tapping reserves

The statement noted that the budget "comes amid challenging international and regional economic and financial conditions" including "very low oil prices".

Riyadh tapped into the huge fiscal reserves it accumulated when oil prices were high to maintain high spending this year and launch a military intervention against Iran-backed rebels in Yemen.

The IMF has warned Riyadh that failure to cut spending and implement reforms will eat up the country's fiscal reserves in just five years.

The kingdom withdrew more than $80 billion this year from the reserves, which stood at $732 billion at the end of 2014, and issued bonds worth around $20 billion.