IMF Tells Saudis: Reduce Energy Subsidies

IMF Tells Saudis: Reduce Energy SubsidiesIMF Tells Saudis: Reduce Energy Subsidies

The International Monetary Fund urged Saudi Arabia to reduce domestic energy subsidies and its public sector wage bill, as the world's top oil exporter wrestles with plunging crude prices.

Oil prices fell to a more than six-year low near $42 a barrel last month, while Saudi Arabia's government spending increased after the king ordered bonus salary payments in January following his accession to power, Arabian Business reported.

The Saudi economy is forecast to keep expanding strongly this year, showing little impact from the oil price drop, the IMF said after consultations with the kingdom, but it urged it to adjust its fiscal position. The fund said in June it projected Saudi growth this year to be 2.8%, falling to 2.4% next year, and that the government will likely run a deficit of 19.5% of gross domestic product in 2015.

Tim Callen, IMF mission chief to Saudi Arabia, said robust Saudi second quarter GDP growth suggested the annual rate of increase in economic activity may be slightly higher than forecast.

"We think higher energy prices are needed. There will be benefits to that both on fiscal side and in terms of reducing the growth of energy consumption, but it needs to be done as part of a complete package well communicated to the public," he said.

A Saudi newspaper reported this month that the kingdom was looking more closely at cutting gasoline subsidies after the UAE did so last month. Allowing prices to rise would be one of the biggest economic reforms in the country for years and a highly politically sensitive one, as many Saudis regard cheap fuel as their right as citizens of a major oil producer.

  Power Demand at Record High

Saudi Electricity Company's peak power load hit its highest level ever in August driven by local demand for power during the hot summer, the Persian Gulf's largest utility said on Sunday.

SEC's peak load rose by 10.2% to 62,260 MW from 56,547 MW a year earlier, SEC said in a statement.

Saudi Arabia, the world's top oil exporter, burns a significant amount of its crude oil for power generation.

Rising domestic power consumption threatens to reduce the amount of crude available for export. Crude oil used to generate power surged to 894,000 barrels per day in June. To meet the kingdom's power demand, which is growing at 6-8% annually, SEC currently spends $10.7 billion to $16 billion a year.