IMF Says Its Call for Saudi Fiscal Restraint Met With Opposition
IMF Says Its Call for Saudi Fiscal Restraint Met With Opposition
(Bloomberg) --
The International Monetary Fund warned that Saudi Arabia needs a tighter fiscal policy to safeguard its budget in case of a decline in oil prices, a view the lender said wasn’t shared by the kingdom’s authorities.
“Fiscal consolidation is needed to reduce these vulnerabilities,” the IMF said after its Article IV consultation. The kingdom’s ability to balance its budget in 2023 “appears reliant on relatively optimistic oil price assumptions and assumed spending restraint that has not been evident in the past two years,” it said in a statement Monday.
The Finance Ministry said in response that it agrees with the IMF report’s projections for the economic outlook over the medium term but differs with other estimates such as the expected budget deficits.
Saudi Arabia has struggled as it looks to steer the economy from its near-total dependence on crude. Days ago, King Salman dismissed Energy Minister Khalid Al-Falih and appointed one of his sons instead, putting a royal family member in charge of oil policy in the world’s largest crude exporter for the first time.
The biggest Arab economy is likely to stick to its policy of controlling supply under the new minister. Brent extended gains and was trading above $62 a barrel for the first time since July.
- The IMF left its major 2019 forecasts unchanged for Saudi Arabia, with the budget deficit projected to widen to 6.5% of gross domestic product from 5.9% in 2018 and then reach 5.1% in 2020
- Spending seen growing and surpassing the amount in the budget
- Staff suggested additional fiscal measures of 0.9% of GDP a year during 2020–2024 relative to the baseline
- Additional steps could include raising the value-added tax rate to 10% from 5%, higher water prices and “better targeting” its programs of social assistance
- Non-oil growth this year is estimated at 2.9%, with the overall economy set to expand 1.9%, slowing as a result of output curbs negotiated by OPEC and its partners
- While oil accounts for more than 40% of GDP, and about 80% of exports, non-oil activity is heavily dependent on government outlays financed by oil revenue
The IMF also reiterated that diversifying the economy is needed to create more jobs for Saudi citizens and mitigate the impact of uncertainty in oil markets. “The uncertain outlook for oil prices, both at short and long horizons, also calls for diversification,” it said.
--With assistance from Vivian Nereim.
To contact the reporter on this story: Abeer Abu Omar in Dubai at aabuomar@bloomberg.net
To contact the editors responsible for this story: Lin Noueihed at lnoueihed@bloomberg.net, Paul Abelsky, Amy Teibel
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