IMF slashes growth forecast for Saudi Arabia

The IMF cut its growth forecast for Saudi Arabia on lower oil production as the kingdom ushers in a slew of economic reforms.

GDP will expand 0.4 per cent in 2017, the IMF said in its World Economic Outlook report update. It compares with the fund’s October prediction of 2 per cent growth.

The fund raised its forecast for US economic growth in 2017 and 2018 on the back of president-elect Donald Trump’s tax and spending plans.

It kept its overall global growth forecasts unchanged from October at 3.4 per cent for 2017 and 3.6 per cent for 2018.

That is still more than the 3.1 per cent growth in 2016, the weakest year since the global financial crisis.

The IMF said that expansionary fiscal measures could also stoke inflation.

“If a fiscally-driven demand increase collides with more rigid capacity constraints, a steeper path for interest rates will be necessary to contain inflation, the dollar will appreciate sharply, real growth will be lower, budget pressure will increase and the US current account deficit will widen,” the IMF chief economist Maurice Obstfeld said.

Saudi Arabia is seeking to reduce its dependence on oil by investing in industries from renewable energy to manufacturing. It plans to borrow as much as US$15 billion this year on international debt markets to help fund its spending plans, following last year’s $17.5bn sovereign bond sale.

Saudi Arabia's Vision 2030 strategy is being driven by deputy crown prince Mohammed bin Salman, and includes a plan to set up the world's biggest sovereign wealth fund and to sell part of Saudi Aramco. The government has also raised the cost of fuel, and plans to introduce new value added taxes and fees on expatriate employees.

* With Bloomberg and Reuters

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