The International Monetary Fund (IMF) on Thursday tagged Saudi Arabia’s sweeping economic reform plan, “an appropriately bold and far-reaching transformation”.A statement by the Fund in Dubai said the kingdom was cutting spending at the right speed, to cope with a huge state budget deficit caused by low oil prices.
The IMF also said it approved of the way in which the government was financing its deficit with a combination of drawing down its financial reserves and issuing debt at home and abroad.
The IMF had for years been urging Saudi Arabia to adopt many of those measures.
“The supporting policies that will be announced in the coming months are expected to set out how these goals will be achieved,” IMF official Tim Callen said.
“To ensure their success, the reforms will need to be properly prioritized and sequenced, and the appropriate pace of implementation carefully assessed.”
Late last month, Deputy Crown Prince Mohammed bin Salman announced steps to reduce the kingdom’s dependence on oil exports over the next 15 years.
The measures included subsidy cuts, tax rises, sale of state assets, a government efficiency drive and efforts to spur private sector investment.
Riyadh has been cutting spending and trying to raise fresh revenues as it grapples with its budget deficit, which totaled $98 billion in 2015.
The IMF predicted the deficit would stay very large this year, at about 14 per cent of gross domestic product, compared to 16 per cent last year.
But it welcomed the government’s spending controls and changes to domestic energy prices announced last December.
The Fund said: “Fiscal policy is appropriately adjusting to the drop in oil prices. The economy is expected to grow 1.2 per cent this year, slowing from 3.5 per cent in 2015.”
The Fund has been encouraging some North African states to make their foreign exchange rates more flexible to cope with big current account deficits.
IMF said the Saudi banking sector was strong and well-positioned to weather a slowing economy, and that tightening liquidity was not yet hurting credit growth.
Two cornerstones of the Saudi reform plan are the sale of a stake of up to 5 per cent in national oil giant Saudi Aramco, which could fetch tens of billions of dollars.
There is also a build-up of the government’s Public Investment Fund into a global investment vehicle.
The IMF urged Riyadh to make both institutions more transparent and to integrate them into a new fiscal policy apparatus which the government is creating to make spending decisions more efficient.
