IMF praises Saudi budget plans, says eliminating deficit feasible
The International Monetary Fund praised Saudi Arabia’s budget plans on Tuesday and said Riyadh’s goal of eliminating a huge fiscal deficit left by low oil prices by 2020 looked feasible.
Late last month, Riyadh announced it had cut its deficit from a record 367 billion riyals ($98 billion) in 2015 to 297 billion in 2016, and released a budget plan projecting 198 billion for this year. For the first time, it also laid out detailed guidelines for spending and raising new revenue over the next few years.
Tim Callen, the IMF’s mission chief for Saudi Arabia, said the gist of Saudi Arabia’s plans was in line with the IMF’s recommendations and that eliminating the deficit by around 2020 appeared possible.
He said the medium-term guidelines for spending and revenues were particularly important because they would reduce uncertainty in financial markets and the private sector, which the government wants to invest in its projects now that oil revenues have shrunk.
“The plan is in place – now the challenge is clearly implementation of that plan,” Callen told an online news conference in Washington.
In an update to its economic forecasts this week, the IMF slashed its prediction for Saudi Arabia’s economic growth in 2017 to 0.4 percent – the slowest rate since the global financial crisis at the end of the last decade – from a forecast of 2.0 percent made last October.
But Callen said this was almost entirely because Saudi Arabia’s oil sector was now expected to shrink after Riyadh agreed in December to cut oil output under a deal with global producers.
Growth in Saudi Arabia’s non-oil sector is likely to pick up to near 2 percent this year, after the government resumed making delayed payments on its debts to the private sector, Callen said.
Those payments were facilitated by a mammoth $17.5 billion international bond issue in October. Saudi Arabia is expected to offer another bond abroad this year, and as long as market conditions remain favourable, it is likely to attract strong demand once again, Callen said.
In its October forecasts, the IMF predicted Saudi Arabia would run a state budget deficit of 9.5 percent of gross domestic product in 2017. Callen declined to say whether that forecast might now be revised, but added that he still expected a deficit of less than 10 percent.
Among the implementation challenges that Saudi Arabia faces are administrative and legal issues surrounding its plan to introduce a 5 percent value-added tax next year, Callen said.
He added that Riyadh still needed to flesh out its plans to have the private sector employ more Saudi citizens, as the government hires fewer new workers. Saudi unemployment rose to 12.1 percent in the third quarter of 2016, a four-year high.