Saudi Arabia will post a budget deficit equal to 20 per cent of economic output this year, as the government pursues spending plans in the face of an oil slump that has slashed revenue, the IMF said.
The fiscal support will help keep economic growth at about 3.5 per cent this year, the fund said in an emailed statement. That will slow to 2.7 per cent in 2016 “as government spending begins to adjust to the lower oil price environment,” it said. In the next few years, Saudi Arabia will need “a sizable fiscal policy consolidation,” the fund said.
Saudi Arabia is the world’s biggest oil exporter, and posted large budget surpluses in recent years. The plunge into deficit comes as the kingdom fights wars in Yemen and Syria and pursues a stimulus plan to ward off political unrest. Meanwhile, crude prices have dropped about 40 per cent from a year ago.
The kingdom has been burning through its reserves at a record pace to finance government spending. That is likely to slow “as the government starts to issue debt to finance the deficit instead,” the IMF said.
Saudi Arabia has the lowest level of gross government debt in the region at 1.6 per cent of GDP last year, according to the IMF.
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