IMF urges Saudi not to boost spending as reforms progress
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IMF urges Saudi not to boost spending as reforms progress

IMF urges Saudi not to boost spending as reforms progress

As recently as last year, the IMF warned Riyadh not to slash its budget deficit too rapidly

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Saudi Arabia’s economic reforms are going well, the International Monetary Fund said after annual consultations with authorities, urging the government not to boost spending in line with climbing oil prices.

“Saudi Arabia is making good progress in implementing its ambitious reform program under Vision 2030,” Tim Callen, head of an IMF team which held talks with Saudi officials over 12 days this month, said in a statement late on Tuesday.

He predicted economic growth would start picking up this year, after gross domestic product shrank last year for the first time since 2009.

“The government remains committed to wide-ranging economic and social reforms to transform the economy away from its traditional reliance on oil and to create a more dynamic private sector that creates jobs for the growing working-age population.”

As recently as last year, the IMF warned Riyadh not to slash its budget deficit too rapidly for fear of damaging the economy. This helped to convince authorities at the end of last year to push back the date for balancing the budget to 2023 from 2020.

Read: Saudi to push back balanced budget target to 2023

On Tuesday, however, Callen struck a very different note, saying authorities should “resist the temptation to re-expand government spending in line with higher oil prices”.

Brent crude has surged to multi-year highs around $80 a barrel from below $65 in mid-February, potentially giving Riyadh much greater export revenues than it had expected.

Read: Oil rises on supply concerns as OPEC considers raising output

“Targeting a balanced budget in 2023 is appropriate. The government should now focus on delivering on this objective. Limiting the growth of government spending will be necessary to achieve the fiscal targets,” Callen said.

In an attempt to compensate for slumping private sector investment, the government plans to use state money to jump-start strategic non-oil industries, such as shipbuilding and tourism, through vehicles such as the Public Investment Fund.

Callen warned this strategy was not a long-term substitute for private sector growth.

Read: Saudi’s PIF plans entertainment centres across kingdom

“While the public sector can be a catalyst for the development of some new sectors, it is important that it does not crowd out private sector involvement, nor remain a long-term player in markets where private enterprises can thrive on their own,” he said.


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