IMF expects the Kingdom to post a budget deficit of 0.6 per cent of GDP in 2016. (Getty)
Saudi Arabia, which has been running big budget surpluses on the back of high oil prices, is expected to see those surpluses shrink gradually in coming years and could post a small deficit as early as 2016, the International Monetary Fund (IMF) said.
“The projected trend decline in oil prices over the medium term will reduce the surpluses, with the fiscal balance expected to turn into a small deficit by 2017,” the IMF said in a report completed in June and published late on Tuesday.
It said the Eurozone’s debt crisis could lead to weaker global demand and lower oil prices, though it acknowledged that its forecasts involved great uncertainty.
“Th e risk profile suggests a wide range for the fiscal balance, from a 15 percent of GDP (gross domestic product) surplus to a 12 per cent of GDP deficit by 2015,” it said.
Under the IMF’s base projection, Saudi Arabia is expected to run a budget deficit of 0.6 per cent of GDP in 2016; this would be its first deficit since 2009, when plunging oil prices during the global financial crisis pushed the government into the red. The deficit is projected to expand to 2.5 per cent in 2017.
Economists believe Saudi Arabia can afford to run small budget deficits for many years if necessary because of massive reserves built up over recent years. Nevertheless, a fall into deficits could be uncomfortable for a government which has boosted spending sharply in the past few years to ease unemployment and social tensions.
The IMF also cut its forecast for Saudi Arabia’s budget surplus this year to 12 per cent of GDP from its previous prediction of 16.5 per cent, citing oil price movements.
The Fund urged the Saudi government to take steps to broaden its tax base and reduce its dependence on volatile revenues from oil exports.
In consultations with the IMF, Saudi authorities said the idea of introducing a value added tax that would cover most Gulf Arab countries was still being studied, but that other options -such as adjusting excise taxes to discourage consumption of products such as tobacco — were also being discussed, according to the IMF report.