The growth of Saudi Arabia’s economy is expected to be above 4 per cent in 2014 and 2015, according to Tim Callen, the Washington-based IMF’s mission chief to the kingdom.

He said government spending and robust private-sector activity are set to boost economic growth, with inflation likely to remain subdued.

But he warned the kingdom’s fiscal surplus is forecast to decline further in 2014 as government spending increases, which could cause the budget to move into deficit in the next few years unless the growth of government spending is slowed down.

“The substantial fiscal buffers that the government has accumulated over the past decade already provide important protection to the economy in the event of a negative shock such as a fall in oil prices, and should be maintained,” says Callen.

“In addition, the authorities have initiated actions to strengthen the fiscal framework and they are encouraged to build on this progress to further reform the annual budget, introduce a medium-term budget framework, and develop tools to manage the volatility of oil revenues.”

Equity prices, however, have risen strongly over the past year, and should be carefully monitored in the period ahead, according to Callen, adding that the introduction of a formal macroprudential framework would strengthen the financial stability framework.