Saudi Arabia, the world’s biggest oil exporter, is pursuing an “appropriate” policy by pushing back its deadline of achieving a balanced budget to 2023, giving the economy a breather as it slows down fiscal reforms to propel growth that stagnated in 2017, the IMF mission chief to Saudi Arabia said.
“We are happy to see that the government has now set a later date for returning the budget to balance and we think that is entirely appropriate. If they can achieve a budget balance by 2023 that would be fine,” said Tim Callen.
The kingdom revealed last year its biggest budget ever for 2018, allocated 200 billion riyal to a four-year stimulus programme and approved bonuses for public sector employees, measures that are aimed at accelerating growth hurt by austerity and low oil prices.
The IMF had called last year on the kingdom to ease the pace of fiscal consolidation that led to a 0.5 per cent economic contraction in 2017, compared with 1.7 per cent growth in 2016.
“This is not a call to stop the fiscal reforms that are going on," said Mr Callen. "This is a call to implement them at a slower pace than the government had previously planned.”
The Arab world’s largest economy began tightening its purse strings in 2016 to help narrow its fiscal deficit, which reached a record 367bn riyals in 2015 in the wake of plunging oil prices. But fiscal consolidation efforts, which included increasing energy prices and freezing public sector salary hikes, have curbed Saudi Arabia's economic growth. Government revenues have been further impacted by a global oil pact to curb oil production that began in January 2017 and subsequently extended until the end of 2018. The agreement to trim 1.8 million barrels of oil a day is intended to shore up oil prices that have risen to around $70 a barrel.
But last year the kingdom unveiled an expansionary budget for 2018 with 978bn riyals in expenditures, a 5.6 per cent increase from 2017.
The kingdom is also implementing an economic overhaul plan and various reforms under the 2020 National Transformation Programme and its over-arching Vision 2030 agenda to help wean the country off oil income and create new revenue streams.
In January the fund revised up its growth projections for Saudi Arabia where growth will reach 1.6 per cent in 2018 and 2.2 in 2019, 0.5 and 0.6 percentage points higher than its October forecasts.
Mr Callen said the upgrade in forecasts is mainly due to higher projections for non-oil growth, which will reach 2.1 per cent this year. The oil sector will expand 0.9 per cent this year.
“The government spent a lot of money at the end of 2017 and it also is planning a higher level of spending in 2018 than we previously expected so that should provide for non-oil growth,” said Mr Callen.
“Oil prices have increased and higher oil prices are generally good for confidence in the economy and the private sector.”
Saudi Arabia is even more bullish, forecasting growth of 2.7 per cent in 2018 and 2019, thanks to its new spending measures.