The Washington-based IMF forecasts that Saudi Arabia’s fiscal deficit will decline to 4.6 per cent of GDP in 2018, down from 9.3 per cent in 2017.
In its latest Saudi Arabia Article IV consultation, the IMF projects that the kingdom’s fiscal deficit will decline further in 2019, dropping to 1.7 per cent of GDP. The fund estimates that the kingdom’s deficit will drop in 2018 and 2019 as a result of increased oil exports and growth in non-oil revenues, which will more than offset additional capacity spending and compensatory payments to lower-income Saudis through the Citizens’ Account scheme.
The fund, however, states that while the fiscal deficit will drop in the short term, it forecasts it will widen again in the medium term, with oil prices implied by future markets decreasing. The fund expects the deficit to be financed by a “combination of asset drawdowns and domestic and international borrowing”.
In its latest Saudi report, published on 24 August, the IMF welcomed the kingdom’s fiscal consolidation efforts and said it supported Riyadh’s goal of a balanced budget by 2023. Riyadh had previously been planning to achieve a balanced budget by 2019 under its Fiscal Balance Programme, but has since pushed the target date back to avoid a negative impact on economic growth.
The IMF revealed in July that it had increased its growth forecast for the Saudi economy in 2018, expecting the kingdom to record real GDP growth of 1.9 per cent for the year, up from the 1.7 per cent growth forecast it had released earlier in the year. The kingdom’s GDP contracted by 0.9 per cent in 2017.
In the latest Article IV consultation report, the IMF explains the improvement in real GDP is expected due to planned increases in oil output in addition to strengthening non-oil growth, which is forecast to rise to 2.3 per cent this year. Real GDP growth is expected to increase further over the medium-term as oil output increases and the kingdom pushes ahead with its ambitious reform programme.
The IMF praised the kingdom’s efforts in establishing new revenue measures, highlighting the introduction of VAT. The IMF directors who conducted the consultation noted that they had “encouraged the authorities to continue their preparations to lower the VAT registration threshold in 2019”.
The IMF report also noted the kingdom’s efforts with its privatisation and public-private partnerships (PPP) plans, and welcomed progress with implementing structural reforms. The fund believes the public sector could be a “catalyst for the development of new sectors”, but stressed it should not “crowd-out the private sector”.
|This article has been unlocked to allow non-subscribers to sample MEED’s content. MEED provides exclusive news, data and analysis on the Middle East every day. For access to MEED’s Middle East business intelligence, subscribe here|