Saudi Arabia has announced plans to cut government spending and reform its finances after plunging oil prices resulted in a record annual budget deficit of nearly $98bn (£66bn). The state ran a deficit of 367bn riyals ($97.9bn) in 2015, or 15% of gross domestic product, officials said. The 2016 budget plan aims to cut that to 326bn riyals, reducing pressure on Riyadh to pay its bills by liquidating assets held abroad. 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 more than 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 warned in October that Riyadh would run out of money within five years if it did not tighten its belt. Saudi Arabia’s public finances benefited from increases in oil prices after 2003 and the world’s biggest crude exporter was running a budget surplus of 12% of GDP as recently as 2012. For the second successive year, the Saudi government will be running a deficit thanks to falling oil prices. The deficit itself is not an issue, but the budget still highlights the overly large role that oil plays, especially in terms of providing subsidies to citizens and residents. In Saudi Arabia alone, state revenue from oil stands at an estimated 73 per cent in 2015. The UAE has shown that economic diversity is more than just a theory. The country has already brought in tourism, aviation, manufacturing and retail and is on its way to building a knowledge economy. Oil in Dubai contributes only 6 per cent to the economy. This is the type of environment that oil money should be building in Gulf countries, instead of those that include energy and utility subsidies. Subsidies should have been a short-term bridge to help Gulf countries transition to developed economy status. Instead, those subsides have become entrenched and viewed as necessities or rights. That mindset can be changed if people are shown a world where innovation, instead of subsidies, drive the economy. It isn’t too late for this to happen, but time just like oil is limited. Governments need to make those changes now, while they can still see that the transition is accomplished smoothly and while helping to maintain the people’s high standard of living.