IMF says Saudi may post small budget deficit in 2016 amid global recession

Spread the love
gulf cooperation council arab oil
A Saudi oil company official watches work at a rig. Photo –

The International Monetary Fund (IMF) said on Wednesday it expects oil rich Saudi Arabia, which has been running big budget surpluses on the back of high oil prices, to post a small deficit as early as 2016.

“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 on Wednesday.

The findings suggested that the euro zone’s debt crisis could lead to weaker global demand and lower oil prices, though it acknowledged that its forecasts involved great uncertainty.

“The risk profile suggests a wide range for the fiscal balance, from a 15% of GDP (gross domestic product) surplus to a 12% 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% 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% 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 12.0% of GDP from its previous prediction of 16.5%, 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.

According to the IMF report, Saudi authorities are considering the introducing a value added tax that would cover most Gulf Arab countries. Other options such as adjusting excise taxes to discourage consumption of products such as tobacco are also being discussed.

Facebook Comments