IMF lowers Saudi fiscal deficit forecast to 6.5% of GDP this year

The International Monetary Fund estimates Saudi Arabia will have a fiscal deficit of 6.5 per cent of GDP this year, below a previous 7 per cent estimate, but still well above the government’s own projection of 4.2 per cent.

Fiscal consolidation remains key and a “more measured increase in capital spending” would help the kingdom to generate fiscal savings, the fund said in a statement on Thursday.

The Saudi economy, the largest in the Middle East, has suffered in recent years because of low oil prices and austerity measures aimed at reducing a huge budget deficit.

In 2017, it shrank for the first time since the global financial crisis almost a decade earlier, but last year it grew 2.2 per cent, boosted by strong oil sector growth.

While exposing fiscal vulnerabilities, a boost in government spending this year has helped Saudi Arabia’s non-oil sector. The government said last month the sector grew 2.1 per cent in the first quarter. The IMF expects it to strengthen by 2.9 per cent in 2019.

Overall growth is expected to slow to 1.9 per cent, the IMF said, confirming previous estimates, as the Saudi economy will be affected by OPEC-led oil production cuts.