IMF sees Saudi Arabia budget deficit narrowing as it delivers spending cuts

The deficit will fall to 9.6 per cent of GDP from an estimated level of 13 per cent this year.

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Saudi Arabia’s budget deficit will probably narrow to below 10 per cent of economic output next year as the government delivers on its pledge to cut spending after the plunge in oil prices squeezed public finances, according to the IMF.

The deficit will fall to 9.6 per cent of GDP from an estimated level of 13 per cent this year, Tim Callen, Saudi Arabia’s mission chief at the Washington-based lender, said in a telephone interview on Wednesday.

“The fiscal adjustment is under way, the government is very serious in bringing about that fiscal adjustment,” Callen said. “We’re happy with the progress that’s being made.”

The world’s biggest oil exporter has taken unprecedented steps to rein in a budget shortfall that ballooned to 16 per cent of GDP last year, including reducing fuel subsidies. Economists expect spending cuts to weigh on growth, which is set to slow to the worst level since the global financial crisis, according to a Bloomberg survey.

The IMF expects the biggest Arab economy to expand 1.2 per cent this year. Growth in the medium-term is expected to settle around 2.25 per cent to 2.5 per cent.

Economic activity “is clearly going to have to be stronger than we have in our baseline to accommodate all of the young population that is going to be moving into the labour force,” Callen said. “The public sector is not going to be able to employ people at the rate that it has in the past given the much more difficult fiscal position.”

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