IMF slashes Saudi growth forecast on lower oil output

The International Monetary Fund (IMF) has cut Saudi Arabia’s GDP growth forecast to 0.4 percent for 2017, from 2 percent previously, on the back of lower oil production this year.

“Growth in Saudi Arabia is expected to be weaker than previously forecast in 2017 as oil production is cut back in line with the recent OPEC agreement,” the Fund said in an update to its World Economic Outlook released on Monday.

Saudi Arabia agreed with other OPEC members to limit oil production to 32.5 million barrels per day on Nov. 30 last year, in a bid to tackle the supply glut and boost oil prices.

The kingdom agreed to slash production by 486,000 bpd, and so far has reduced output to below 10 million bpd – its lowest level in nearly two years, energy minister Khalid Al-Falih said last week. 

Gian Milesi-Ferreti, deputy director at the IMF’s research department, said lower crude production would hurt the kingdom’s growth and impact the non-oil sector as well.

“Less oil production is going to mean less output from the oil sector even if prices are a little bit higher,” he told reporters in a press briefing.

“With regard to the non-oil economy, Saudi Arabia is embarking on a very ambitious structural reform program, but also a very sizeable fiscal consolidation because of the decline in oil revenues. So there is a big adjustment in spending downwards,” Milesi-Ferreti said.

Saudi Arabia unveiled a series of reforms last year under the Vision 2030 and National Transformation Plan 2020 initiatives to reduce hydrocarbon dependence.

The world’s top oil exporter raised taxes and other fees, rolled back subsidies, and suspended bonuses for public employees under austerity measures.

Consequently, growth in the non-oil sector will be less buoyant than it was when oil prices were higher, the IMF said.

“Clearly, a bit higher oil prices help on the revenue front, but there is a lot of ground to be made in order to close the fiscal deficit that has opened with the decline in oil prices,” Milesi-Ferreti noted, adding that there is “clearly a trend towards lower spending given the very sharp decline in revenues.”

In a note issued on Tuesday, Dubai-based lender Emirates NBD said it remains “more optimistic than the IMF on Saudi Arabia,” adding that it expects growth of 1.8 percent this year.

Write to Jerusha Sequeira at jerusha.s@argaamnews.com