Saudi Arabia’s GDP and current account will both perform better in 2016 than had been previously expected, figures contained in the IMF’s initial statement on its annual Article IV consultation with the kingdom suggest.
The statement forecasts Saudi Arabia’s GDP in dollar terms and at current prices will hold steady in 2016 at $646bn despite a fall of about 15 per cent in the forecast price of world oil prices. The kingdom’s oil production in the first half of 2016 has averaged 10.3m barrels a day (b/d), according to OPEC. That is about 1 per cent higher than the average in 2015
MEED forecast earlier this year that the kingdom’s GDP would contract by a further 6 per cent in 2016.
The IMF’s statement forecasts that Saudi Arabia’s current account deficit in 2016 will be $41.1bn compared with $53.5bn last year. The kingdom’s oil and refined product export earnings are forecast to fall by 14 per cent to $132.6bn.
MEED’s forecast had been for the current account deficit to grow to by more than half to $68bn.
“Executive Directors noted that Saudi Arabia faces important challenges stemming from the decline in oil prices,” the statement said. “They welcomed the authorities’ timely response, which, supported by sizeable fiscal buffers and a strong and resilient financial system, has maintained macroeconomic growth and stability. Nonetheless, the fiscal and current account balances have moved into deficit and growth is starting to slow. Directors highlighted the need for continued fiscal adjustment and reforms to strengthen and transform the Saudi Arabian economy. In this regard, they commended the authorities’ bold reform plans.”
They generally agreed that balancing the budget over the medium term is an appropriate goal and encouraged the authorities to develop a credible medium-term plan to achieve this objective,” the statement said. “They supported expenditure and revenue reforms, including continued gradual adjustment of energy prices with compensation for lower-income households, introduction of a VAT and excise taxes, containment of the government wage bill, and improved public investment management and spending efficiency. They recommended accompanying these measures with growth-enhancing structural reforms.”