RIYADH: The International Monetary Fund (IMF) lowered its growth outlook for Saudi Arabia on back of lower oil production and capital spending.
According to details, in its World Economic Outlook report update, the IMF said gross domestic product (GDP) will expand 0.4 per cent in 2017. It compares with the fund’s October prediction of 2 percent growth in the October 2016 report.
In December 2016, the Saudi government said growth slowed to 1.4 percent in 2016, below the average of 4 percent in the past decade.
The Ministry of Finance said the government posted a deficit of $79.02 billion (SR297 billion) for 2016, 9 percent lower than its initial estimate year and expects the deficit to shrink to $52.80bn (SR198bn), or 7.7 per cent of GDP. The government is targeting to post a “balanced” budget by 2020.
Last week, two people familiar with the matter said that the Ministry of Economy and Planning had appointed PwC, consultancy firm, to review $69 billion of government contracts with a view to cutting about a third of them.
Deputy Director IMF’s research department Gian Maria Milesi-Ferretti said the forecast for 2017 depends on the behavior of the oil and the non-oil part of the economy.
“Saudi Arabia relies on oil revenues for a very sizable fraction of its exports and its government revenues, and, hence, the impact of lower oil prices on the economy is very strong,” he said, referring to 1.4 percent economic growth.
The IMF official said the oil production cut will have an impact on the government revenue as the volume will come down though oil prices rise.
The “upward” adjustment in taxes will also impact the non-oil growth, as the government will spend lower given the very sharp decline in revenues.
After raising $17.5bn from sovereign bond sale in 2016, the country is planning to generate another $15bn this year from global bond markets.
The country’s Vision 2030 and the National Transformation Program states the Kingdom plans to increase the GDP share of the non-oil private sector from currently 40 percent to 65 percent by 2030 and increase the export share of nominal non-oil GDP from existing 16 percent to 50 percent by 2030.
