Saudi budget deficit set to narrow to 9.6% in 2017, says IMF

Spending cuts and other measures taken by the Saudi government such as reducing energy subsidies are expected to help narrow the budget deficit to 9.6 percent of economic output in 2017 from 13 percent this year, said Tim Callen, the IMF’s Saudi mission chief according to a Bloomberg report.

“The fiscal adjustment is under way, the government is very serious in bringing about that fiscal adjustment,” Callen said in an interview. “We’re happy with the progress that’s being made.”

The kingdom’s gross domestic product (GDP) is set to rise 1.2 percent in 2016 and will then settle around 2.25 percent to 2.5 percent in the medium term, a rate that is unlikely to create enough jobs to meet demand, he added.

Economic activity “is clearly going to have to be stronger than we have in our baseline to accommodate all of the young population that is going to be moving into the labor force,” he said. “The public sector is not going to be able to employ people at the rate that it has in the past given the much more difficult fiscal position.”

Last month, the IMF said that Saudi banks were “well positioned” to weather loan losses. The fund also predicted that the kingdom’s current-account deficit will narrow to 6.4 percent of GDP this year and reach close to balance by 2021 as oil prices partially recover.

“We should worry if budget deficit for the next two years stands at last year’s rate of 16 percent because this will imply a need to huge financing requirements,” Callen added.