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IMF calls for sustainable spending in Saudi Arabia
August 25, 2018, 4:09 pm

The International Monetary Fund (IMF) in its latest country report on Saudi Arabia has warned against the increased spending that could leave the Kingdom’s budget vulnerable in the event of a sudden drop in oil prices.

In its report issued last week the IMF emphasized the need for Saudi authorities to curb a spending spree and ensure that expenditures were “at a sustainable level in different oil price environments” and to avoid a fiscal policy that would create undue volatility.

Oil prices have rebounded strongly after major producers decided to cut output in late 2016. In June, they decided to raise production again.

Saudi revenues jumped 67 percent in the second quarter of 2018, mainly due to a sharp rise in oil income, after oil prices rebounded sharply following the decision by OPEC and its non-OPEC allies to rein-in production from January 2017. However, spending in the Kingdom also soared by 34 percent in the same period according to official government figures.  

The IMF noted in its report that the Saudi budget deficit is expected to continue to narrow from 9.3 percent of GDP last year to 4.6 percent in 2018 and to as low as 1.7 percent next year. But the report highlighted that narrowing of deficit was no reason for complacency, as spending continued to grow and the steady rise in oil prices were not guaranteed.

For the first time since 2009, the Saudi economy contracted by 0.9 percent last year. Early last week, Saudi Arabia also had to issue a statement refuting speculation that it was canceling a planned initial public offering (IPO) of the state-owned global oil giant ARAMCO. The IPO, which aims to place around five percent of the oil behemoth on the market through local and international listing, is predicted to raise the value of the entire company to over $2 trillion.

Pointing out that around half of Kingdom’s budget expenditure is directed to public sector wages, the IMF recommended that "the workforce could be gradually reduced through natural attrition". With unemployment among Saudi citizens at 12.8 percent, and for women at 31 percent, a key challenge for the government will be to create around 50,000 jobs for its citizens over the next five years, said the IMF, while suggesting that most of these jobs should preferably be in the private sector. In this regard, the Saudi authorities are reported to have told the IMF that the civil service system is under revision with the help of the World Bank.


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