IMF expects Saudi fiscal deficit to reach 7% of GDP this year

Higher public spending will push Saudi Arabia's budget deficit to 7 percent of gross domestic product (GDP) this year, the International Monetary Fund (IMF) said on Wednesday, a forecast well above the government's own projection.

Also read: IMF says Saudi economic reforms are beginning to 'pay off'

The IMF's forecast assumes that Saudi oil output will average 10.2 million barrels a day and oil prices will average $65.5 a barrel in 2019, it said in a statement after a staff visit to the kingdom. The IMF said the fiscal deficit was 5.9 percent in 2018.

The Saudi government has forecast a budget deficit of 4.2 percent of GDP this year.

The kingdom recorded a budget surplus of SAR 27.8 billion ($7.4 billion) in the January-March period, its first surplus since oil prices plunged in 2014.

The IMF said the introduction of a value-added tax has been successful, but the Saudi government should consider raising it from 5 percent, which is low by global standards, in consultation with other Gulf governments.

A reduction in the government wage bill, a more measured increase in capital spending, and better targeting of social benefits will all yield savings, it said.