Tycoon prince assails Saudi fiscal policy over deficit

RIYADH - Billionaire Prince Alwaleed bin Talal has lashed out at the Saudi fiscal policy after projecting the largest ever budget deficit for 2015 following the slump in oil prices.

"We have reached the danger point... after starting to withdraw from the reserves," to meet the budget shortfall, Alwaleed said in a letter addressed to the finance minister.

Last week, the world's biggest crude exporter announced an expansionary 2015 budget with the largest-ever deficit of US$38.6 billion (S$51 billion).

It projected spending at US$229.3 billion, a slight rise from last year's estimates, and revenues at US$190.7 billion, sharply down from US$228 billion projected in 2014.

Saudi Arabia, the lead producer in the Organisation of the Petroleum Exporting Countries, also said it estimates 2014 actual budget deficit at US$14.4 billion as both spending and revenues far exceeded projections.

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.

Oil income contributes about 90 per cent of public revenues in the OPEC kingpin which pumps around 9.6 million barrels per day.

If the government had contained last year's spending within projections, a surplus of at least US$50 billion would have been posted, the prince said.

As a result of failing to check rising spending, a total of $53 billion will be withdrawn from fiscal reserves, estimated at US$750 billion, in just two years, he said.

Alwaleed also criticised the way Saudi reserves are invested, saying because most of them are invested in US and European bonds, they have low yields at around 2.4 per cent annually.

The reserves are currently managed by the Saudi Arabian Monetary Agency, or the central bank.

Alwaleed called for the creation of an independent sovereign wealth fund to invest the reserves and increase the returns to around 7-8 per cent.

If oil prices remain at the current level of under $60 a barrel for benchmark Brent crude, Saudi Arabia is expected to lose half of its oil revenues of US$276 billion posted in 2013. Oil income in 2014 was estimated at US$248 billion.