5 oil-producing countries must 'tighten their belts' due to sharp price drops

Huge surpluses are giving way to budget deficits, while social welfare programs are being replaced by austerity and spending cuts.

Oil prices have now plummeted to below $37 per barrel, compared to more than $100 per barrel in 2014. According to CNN, there is too much oil supply, but oil producers are still exploiting it as if "there is no tomorrow". Meanwhile, the demand for oil in China and many other countries has decreased, greatly affecting oil prices recently. Below are the 5 countries most affected by the drop in oil prices.

Venezuela

Venezuela has the world’s largest oil reserves. For years, the government has used the money it earns from producing and selling crude to pay for pensions, health care, welfare, and even subsidize groceries and housing.

But now Venezuela’s economy is on the brink of collapse. Inflation hit more than 150% in 2015 and is expected to rise to more than 200% in 2016. The government can’t pay its bills, and food and basic necessities are in short supply.

The economic downturn has led to political instability. In December 2015, the opposition won a majority in elections for the first time in 17 years.

Saudi Arabia

Oil revenues account for 75% of Saudi Arabia's revenue and the country's finances are under severe criticism. The budget deficit was nearly $100 billion in 2015. The government has just announced that it will continue to tighten its budget in 2016.

The IMF estimates Saudi Arabia's fiscal deficit for 2015 at around 20% of GDP and has recommended that the country cut spending sharply in the coming years to avoid debt. Otherwise, the country will find itself in extreme financial difficulty.

Russia

Nearly half of Russia’s government revenue comes from oil and gas exports. The drop in oil prices comes as Russia is also facing Western economic sanctions over its involvement in the Ukraine crisis.

Observers say Russia's GDP will continue to decline in 2016 due to oil prices. Photo: CNN

Russia's budget was based on oil prices of $50 a barrel, but oil prices have now fallen to nearly $37. The IMF forecasts Russia's GDP to shrink by 3.8% in 2015 and by another 0.6% this year.

Nigeria

Africa’s largest oil producer is also in trouble. Oil revenues account for 75% of Nigeria’s total government revenue and nearly 90% of the country’s exports.

The sharp drop in oil prices has left the Nigerian government unable to pay its bills. Local media reports say that civil servants in some parts of the country have not received their salaries for months. The country is also currently experiencing power cuts and fuel shortages.

Iraq

While Iraq desperately needs revenue to fight the Islamic State, global oil prices have plummeted. The country increased production and pumped a “huge” amount of oil in 2015, but the increase in output could not make up for the loss of oil prices. Despite its huge oil reserves, the government needs to invest more in infrastructure to exploit them.

According to VNE