São Paulo – Despite the decline in oil exports, the Saudi economy is unlikely to experience recession this year because production of the commodity remained at the same level, as did public spending. In a report released this Monday (1st), the International Monetary Fund (IMF) said these indicators should sustain 3.5% growth in Gross Domestic Product (GDP) this year. GDP is expected to be up 2.7% in 2016 and 3% the following years. The Fund has warned nonetheless that the country will require fiscal adjustments over the medium term.
The IMF’s report is an article IV consultation, which is an overview of Saudi Arabia’s economy. The IMF adopts the same procedure with all countries. The Saudi economy was reviewed from May 17th to 28th. In the report, economists from the IMF staff note that the Saudi government ensures GDP growth in 2015 by keeping public spending and oil production flat, but that this should cause a 20% current account deficit this year.
“While this is an appropriate policy at this conjuncture given the large stock of deposits and very low government debt, a sizable fiscal policy consolidation will be needed over the next few years to put the deficit on a gradual but firm downward path,” the IMF report reads.
The Fund advised on a “strong”, goal-based fiscal consolidation to support the necessary adjustments. Non-oil sector expansion and increased public spending efficiency are also needed to attain fiscal consolidation.
The report lauded the recent opening of Saudi stock exchange Tadawul to foreign investors, and acknowledged the fact that the Saudi government is adopting an ambitious program to increase youth participation in private sector labor. “With a young educated population entering the labor force in large numbers each year, creating a sufficient number of well-paying jobs is a critical challenge to support sustained and inclusive growth,” the IMF says.
*Translated by Gabriel Pomerancblum
