If Saudi Arabia maintains oil production at current levels amid the oil price crash, then it's going to have to cut its budget — or it will likely be bankrupt by the end of the decade. The big issue is Saudi Arabia's big spending ways, especially increased government spending on social welfare programs. According to the IMF, government expenditures in Saudi Arabia are expected to reach 50.4 percent of GDP in 2015, up from 40.8 percent in 2014. That increase can be attributed to two things: falling oil prices (it's bringing in less revenue) and an inflated budget (it's spending more money). It's no secret that a large portion of Saudi Arabia's roughly 30 million people rely on the government for economic support. In February, the newly crowned King Salman doled out a reported $32 billion to the Saudi people in bonuses and subsidies to celebrate his ascension to the throne. "We are a welfare society, so the population depends a lot on government subsidies, directly and indirectly," Abdullah Al-Alami, a Saudi writer and economist, recently told The New York Times. "But one day we are going to run out of oil, and I don't believe it is wise to be pampered and subsidized."

Street scene in Jeddah, Saudi Arabia. Omar Salem | AFP | Getty Images

Saudi Arabia is expected to run a deficit of more than 20 percent of GDP in 2015, according to the IMF.

The Saudi kingdom itself projected a 6 percent deficit in its 2015 forecast, but more importantly, this year marked the first time Saudi Arabia predicted a budget deficit since 2011. Saudi Arabia budgeted at the beginning of the year for expenditures of $229 billion, a record level, but also the lowest level of spending growth since 2002. That figure is likely to be higher as actual spending typically outpaces the estimated number by, on average, 25 percent over the past decade. Last year the actual spend reached $293 billion. The 2015 forecast was based on a predicted $79-per-barrel price for Brent crude.



Of the budgeted total for 2015, 25 percent was allocated for education, 19 percent for health and social affairs, 7 percent for transportation and infrastructure, 7 percent for water and agriculture and 5 percent for municipal services. Meanwhile, 36 percent of expenditures were unspecified in the Saudi budget.

Saudi Arabia noted in its 2015 budget that while the forecast represented "almost flat growth, it nonetheless sends an important message to the private sector that the fall in oil prices will not prevent the government from implementing and expanding on its investment plans. High fiscal spending remains psychologically important for the private sector, in our view," it said. Saudi reserves were approximately $736 billion coming into the year.

"Saudi Arabia can afford its oil regime and the economic status-quo in the near-term," Jean-Michel Saliba, an economist at Bank of America Merrill Lynch, wrote in a report in August. "However, the domestic macro costs of its unchanged policy choices are likely to become more acute and apparent."

Part of the problem is Saudi Arabia's growing population. The kingdom supported roughly 4 million people in 1960, and since then, its population has grown rapidly, to the 30 million population level it's at today. Although far-off population boom highs hit in the 1980s, Saudi Arabia's population growth rate is still positive, with the overall population increasing at around 2 percent per annum.

The House of Saud provides its citizens with housing, education, health care — even electricity tariffs tend to be low.

In addition to bonuses, Saudi citizens are not subject to a personal income tax and enjoy perks like subsidized gasoline. According to the International Energy Agency, gasoline prices in Saudi Arabia are less than 10 percent of average prices in Europe. And the IMF estimates that the kingdom spends about $60 billion subsidizing gasoline and other energy resources.

With a growing population and oil hovering around $40 a barrel, how long will it be able to sustain the status quo?

According to the IMF, Saudi Arabia's fiscal breakeven — the price per barrel of oil that it needs to balance its budget — was about $106 in 2014, and it is estimated to remain at about that level for this year as well. "The simple truth is more people means more expense," said Simon Henderson, director of the Gulf and Energy Policy Program at the Washington Institute.

To compensate, Saudi Arabia has turned to the bond market, issuing $5.33 billion in new debt, while tapping into its vast reserves. Domestic debt was only 1.6 percent of GDP at year-end 2014. Budget cuts seem like an obvious option, and the Saudi government has taken steps to pull back on infrastructure spending. But for a regime that had front row seats to the Arab Spring, scaling back benefits to its citizens probably doesn't seem too attractive — even if it means burning through its cash. "There's an implicit contract," Henderson said. "In Saudi Arabia, it's you will respect our power, and we will provide for you."

The Saudi cabinet is stepping up efforts to cooperate with other oil-producing countries in order to stabilize the oil market, with this Friday's big meeting of OPEC nations likely to provide a key read on Saudi oil policy.