Dubai — Saudi Arabia will require oil prices higher than $84/b to avoid running another deficit, analysts warned after the kingdom announced on Tuesday record government spending in its state budget for 2019.

The budget calls for spending of 1.106 trillion riyals ($350 billion) for the year, up 7% from 2018, despite oil prices slumping in the fourth quarter and the kingdom pledging to cut output as part of OPEC's agreement to balance the market.

Analysts with Riyadh-based investment bank Al-Rajhi Capital said the budget implies a fiscal breakeven oil price of $84/b for 2019, which is $27/b higher than the level Brent futures were trading Tuesday afternoon.

The budget figures spotlight the economic pressures Saudi is under to revive flagging oil prices regardless of the kingdom's significant foreign currency reserves, which exceed $500 billion.

The world's largest crude exporter in partnership with OPEC and its allies led by Russia agreed this month in Vienna to cut a combined 1.2 million b/d for the first six months of 2019, amid tepid demand growth and surging US supplies.

Despite the weak oil market, Saudi expects total government revenues to rise 9% to 975 billion riyals in the forthcoming fiscal year, according to the Ministry of Finance. Oil revenues account for more than 70% of the kingdom's total export income.

To achieve its budgeted revenue figure, Riyadh still requires oil to trade at $70/b, Al-Rajhi Capital estimated. Brent prices averaged about $71/b in Q4 2018 but have slid spectacularly in recent weeks due to fears of an oversupply and tepid demand growth.

RISING DEBT

Unless oil prices rebound significantly then the kingdom faces rising debt, or the demands to drain its currency reserves. The budget has been in the red since the oil price crash in 2014, but the ministry said Tuesday it expects the deficit to shrink to zero by 2023.

Boosted by a 3% rise in crude exports, Saudi Arabia's 2018 oil revenues came in at 608 billion riyals, up 38% year on year, the Ministry of Finance said. Meanwhile, non-oil revenues totaled 287 billion riyals, up 12% year on year, as some of the Vision 2030 economic diversification efforts began to pay off.

The rise in revenues allowed Saudi Arabia to narrow its 2018 deficit to 138 billion riyals, down from the ministry's previous guidance in October of 148 billion riyals.

The kingdom had planned to raise more than $100 billion this year from the IPO of state-owned oil producer Aramco. However, the listing has been delayed and the market has grown increasingly unsure whether it will take place due to concerns over the kingdom's desired valuation of $2 trillion. Funds from the sale were intended to spur diversification and provide capital for its sovereign wealth fund.

Without income from the IPO and stalled oil revenues, the kingdom has turned to the bond market to fuel investments. Debt is expected to reach about 22% of GDP in 2019, the Ministry of Finance has previously said. It has imposed a 30% cap on public debt as a percentage of GDP to keep a grip on public finances.

The kingdom's borrowing stood at 549.5 riyals ($146.5 billion) as of September 30, one of the worst performing Gulf countries in the debt market.

Saudi Arabia's government will be keen to secure public support with the increased domestic spending. Aside from oil, the government will invest in domestic infrastructure, and some domestic energy subsidies will remain in place, despite several indications that the government may look to reduce them.

-- Miriam Malek, miriam.malek@spglobal.com

-- Herman Wang, herman.wang@spglobal.com

-- Edited by Andy Critchlow, newsdesk@spglobal.com