Saudi economic growth is expected to slow this year as cheap oil continues to weigh on the Arab world’s biggest economy, the International Monetary Fund said Thursday while welcoming the kingdom’s efforts to promote changes and reduce its dependence on crude sales.
Deputy Crown Prince Mohammed bin Salman last month announced a major plan to sharply lower Saudi Arabia’s reliance on oil revenues, taking a series of steps that have long been urged by the IMF, including subsidy cuts, introduction of taxes, privatizing public assets and improving government efficiency, MarketWatch reported.
“To ensure their success, the reforms will need to be properly prioritized and sequenced, and the appropriate pace of implementation carefully assessed,” said Tim Callen, who led an IMF team to the kingdom earlier this month for annual consultations with Saudi officials.
The Saudi government has taken several measures to cut spending and increase non-oil revenues as it copes with the steep drop in oil prices over the last two years, which resulted in a record budget deficit of about $98 billion in 2015.
The IMF expects Saudi Arabia’s current account and fiscal deficits to be around 9% and 14% of GDP, respectively, in 2016. GDP growth is also expected to slow down to 1.2% this year from 3.5% in 2015, the IMF projected.
However, the IMF praised the government’s approach to finance its deficit through a combination of some of its foreign reserves and issuing debt at both the local and international level.
The IMF also said that Saudi Arabia’s 30-year exchange rate peg to the US dollar continues to serve the kingdom well given the structure of the economy.
