The IMF has said that Saudi Arabia does not need to achieve a balanced budget by 2019 and a more gradual approach to economic reform would ease some of the negative impact of austerity on growth over the coming years.

The comments came at the end of the IMF’s Article IV consultation with the kingdom on 11 May. “The government is adapting its fiscal policy to lower oil prices. The aim of bringing about a large, sustained, and well-paced fiscal adjustment to achieve a balanced budget is appropriate,” said the head of the IMF team Tim Callen. “The target of balancing the budget, however, does not need to be met in 2019 as set out in the Fiscal Balance Programme (FBP) given Saudi Arabia’s strong financial asset position and its low debt. A more gradual fiscal consolidation to achieve budget balance a few years later would reduce the effects on growth in the near-term while still preserving fiscal buffers to help manage future risks.”

Saudi Arabia has already shown signs of a softening position on austerity. In late April King Salman bin Abdulaziz al-Saud has issued a series of decrees that reversed pay cuts introduced last year for government employees. The king also issued another decree giving a bonus of two months’ salary to those involved directly in military operations in Yemen from the Interior Ministry, Defence Ministry, National Guard and intelligence services.

Although it said the kingdom could soften its austerity measures, the IMF still highlighted the need for ongoing economic reform. “Energy price reforms are a key priority, but there is scope for a gradual implementation to give households and businesses more time to adjust. The household allowance is a welcome and powerful tool to support low- and middle-income households as energy prices increase, while support to industry should be available on a limited, temporary, and transparent basis. Successfully implementing non-oil revenue reforms such as the excises and VAT is very important,” said Callen.

The IMF also said that the currency peg to the dollar should continue. “The exchange rate peg to the US dollar continues to serve Saudi Arabia well given the structure of the economy,” said Callen.