Saudi Arabia needs ‘fiscal consolidation’ to balance budget by 2023: IMF

The International Monetary Fund (IMF) says that fiscal consolidation is needed in Saudi Arabia to achieve the budget balance in 2023.

“Fiscal consolidation efforts will need to intensify to rebuild buffers but should be appropriately calibrated to focus on growth-friendly fiscal adjustment. In Saudi Arabia, the fiscal is on the right path and there is clarity as to where it is headed to,” Jihad Azour, director of the Middle East and Central Asia at IMF, said on Monday.

In an interview with Reuters previous week, Saudi Arabia’s finance minister Mohammed Al-Jadaan said he was unconcerned with current oil prices impacting spending plans in 2019, and the government still aims to close its budget deficit by 2023 though the target is not set in stone.

The IMF came out with its Regional Economic Outlook for 2019 today and highlighted political uncertainty and volatile oil prices weighing down on the Middle East growth story.

The report, covering the economies of 23 countries including North Africa, the Levant, the Persian Gulf, and also Djibouti, Somalia, Afghanistan and Pakistan, predicts that overall growth across these nations is expected to slowdown from close to 2 percent in 2018 to around 1.5 percent in 2019.

Growth in Middle East, North Africa and Pakistan (MENAP) oil exporters remains subdued and is projected at 0.4 percent in 2019.

“This mainly reflects a sharp decline in Iran’s economic activity (of 6 percent), oil production cuts (in line with the December 2018 OPEC+ agreement), and tighter domestic financial and monetary conditions in some countries,” the report said.

However growth in the GCC countries is expected to improve slightly to 2.1 percent in 2019, up from 2 percent in 2018.

“Government spending and multiyear infrastructure plans will likely provide some support to economic activity in Kuwait and Saudi Arabia; Expo 2020–related spending in Dubai and Abu Dhabi’s fiscal stimulus plan are expected to support near-term growth in the UAE,” the report stated.

Meanwhile, GDP growth in MENAP oil importers is expected to slow from 4.2 percent in 2018 to 3.6 percent in 2019, before rebounding to 4.3 percent during 2020–23, the IMF said.

“The regional current account deficit is expected to decline from 6.5 percent of GDP in 2018 to 5.9 and 5.2 percent in 2019 and 2020, respectively, as lower oil prices help improve oil importers’ terms of trade,” the report added.

Write to Paromita Dey at paromita.d@argaamplus.com