Saudi Arabia’s economy will stall this year with growth “close to zero” due to lower oil revenue, the International Monetary Fund said.
The fund lowered its 2017 growth forecast to 0.1 per cent from 0.4 per cent, citing OPEC production cuts, uncertainty over oil prices and the structural reforms the country is undertaking to reduce its reliance on crude, it said in a statement concluding its Article IV consultation. The IMF also lowered its non-oil growth projection to 1.7 per cent from 2.1 per cent -- compared with actual growth of 0.2 per cent in 2016.
Lower oil prices and austerity measures are weighing on Saudi Arabia’s economy, which contracted in the first quarter for the first time since 2009 - illustrating the scale of the challenge facing the country’s new heir, Crown Prince Mohammed bin Salman, as he implements his blueprint for a transition away from oil dependency. Even so, the fund said it welcomed the government’s direction, which it said would help the fiscal deficit “narrow substantially in the coming years.”
“Non‑oil growth is expected to pick up this year and overall growth is expected to strengthen over the medium term as structural reforms are implemented,” the IMF board said in the statement. It cautioned the government to monitor the impact of the fiscal measures and to “make corrections if needed.”
Saudi Arabia’s fiscal deficit is expected to narrow to 9.3 per cent of gross domestic product in 2017 and to just under 1 per cent by 2022, from 17.2 per cent last year, the fund said.
The IMF said it commended Saudi Arabia’s plan to remove energy subsidies, encouraging a “more gradual phasing of the price increases to allow households and businesses more time to adjust.” It also said the kingdom’s exchange-rate peg to the dollar “remains appropriate given the structure” of the economy.