IMF cuts Saudi Arabia’s GDP growth forecast, urges reforms

The International Monetary Fund (IMF) has revised its growth forecast for Saudi Arabia’s  real gross domestic product (GDP) growth, which it now expects to slow to 2.8 percent this year amid weak oil prices, a statement issued on Monday by the international body revealed.

The IMF lowered its expectations by 0.2 percentage points from its previous growth estimate of three percent this year.

The kingdom’s GDP growth is also projected to fall further to 2.4 percent in 2016, compared to the previous estimate of 2.7 percent, as public spending is set to adjust to lower oil prices.

The country’s fiscal deficit is expected to amount to 19.5 percent of GDP this year and is likely remain high over the medium term despite an expected decline in 2016, the statement added.

These developments have supported the argument that Saudi Arabia should implement comprehensive reforms to better manage its spending and budget deficit.  A revision of energy prices, controls on public sector wages, a value- added tax (VAT), a land tax and the increased efficiency of public investments were the main recommendations outlined by the IMF in its review.

Amid high unemployment, the kingdom is also under pressure to create more job opportunities for nationals in the private sector and diversify its economy away from its reliance on oil.

The IMF also praised the Saudi government’s decision to issue $5 billion in sovereign bonds recently, while $27 billion in bonds are set to be sold by the end of 2015. The move was described in the statement as “appropriate and would help promote the development of private capital markets”.

The Saudi banking system is also in “a strong position to weather lower oil prices and weaker growth and supported continuing efforts to strengthen financial sector regulation and supervision,” the IMF added.