IMF warns deficit could erode Saudi reserves

Date

9/10/2015 5:27:01 AM

(MENAFN- The Peninsula)

Dubai: The International Monetary Fund warned yesterday that Saudi Arabia’s growing budget deficit could rapidly erode its reserves unless it adapts to slumping oil prices by adopting a host of painful reforms. “With the large decline in oil prices the fiscal deficit has increased sharply and is likely to remain high over the medium term” the IMF said in a report released after talks with Saudi officials. “These deficits will rapidly erode the fiscal buffers that have been built over the past decade” it said.

The kingdom must undertake “a large multi-year fiscal adjustment” to balance the budget the IMF said.

The reforms should include comprehensive energy efficiency and price alterations expanding non-oil revenues reviewing capital and current expenditures and reducing the government wage bill it added. The report projected the Saudi budget deficit to run at 19.5 percent of Gross Domestic Product or around $130bn in 2015. It said the deficit is projected to be lower in 2016 but will remain high in the medium term and is estimated at 9.5 percent of GDP — around $80bn — in 2020.

The IMF has already cut its economic growth projections for Saudi Arabia to 2.8 percent this year and 2.4 percent in 2016.

The report said that the kingdom had informed the IMF that it was considering energy price reforms for commercial and industrial users.

The cost of energy price subsidies accounted for 8.0 percent of GDP last year or around $60 billion the IMF said.

Adjusting Saudi petrol and diesel prices — currently among the lowest on Earth — to that of Gulf levels would save $17bn this year.

The report said that a rapid rise in government spending in recent years off the back of high oil income had increased Saudi’s breakeven price for oil from $69 a barrel in 2010 to $106 a barrel now.

Saudi Finance Minister Ibrahim Al Assaf said on Sunday the government will postpone unnecessary projects to cut spending and issue more bonds to finance a record budget shortfall.

The kingdom — the biggest Arab economy and the world’s largest oil exporter — is facing an unprecedented budget crunch after crude prices dropped by more than half in a year to below $50 a barrel.

It is also leading a costly war in neighbouring Yemen where a Riyadh-led coalition has conducted air strikes against Iran-backed rebels since March.

In 2014 Saudi Arabia posted a budget deficit of $17.5bn only its second since 2002.

Saudi investment firm Jadwa said last week that by the end of July the government had withdrawn $82bn from its reserves reducing the contingency assets to $650bn.

The reserves are expected to drop to $629bn by the end of the year Jadwa said.

Saudi Arabia pumped a record 10.6 million barrels per day in June but this slowed to 10.4 million bpd in July it said. AFP

Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.