Saudi oil output is likely to be lower than its average, Kingdom needs fiscal reforms
Saudi economic growth will slow to 4.4 percent in 2013 from 6.8 percent last year due to an expected fall in oil production, and cuts in government spending, the International Monetary Fund said Tuesday.
"Overall GDP growth is expected at 4.4 percent... because oil output is likely to be lower than its average level in 2012 and the growth rate of government spending looks set to slow," said the IMF.
Following talks with Saudi Arabia, an IMF mission said it was right time for the kingdom to undergo fiscal reforms, to hike fuel prices to reduce consumption and to take precautionary measures to contain inflation.
Inflation has picked up since mid-2012 due to higher food prices and cost increases for restaurants, hotels and transportation, but remains contained at 4.0 percent, the IMF said.
"The fiscal position is very strong. In recent years, the government has run large budget surpluses, reduced debt to very low levels, and built up considerable financial assets," it said in a statement.
"Budget management has been considerably strengthened. From this position of strength, now is a good time to consider further fiscal reforms. In this context, we encourage the government to further develop fiscal tools, including those dealing with oil price uncertainty."
The IMF said a drop in oil output and lower crude prices would likely result in smaller fiscal and current account surpluses in 2013, but "they will remain substantial".
Saudi Arabia posted massive budget surpluses of $81 billion and $103 billion in 2011 and 2012, respectively, and is projected to post a huge surplus this year also.
Last year, the OPEC kingpin used part of the surplus to pay public debt which dropped to $26.4 billion by the end of 2012 from $36.1 billion in the previous year.
The IMF advised Riyadh to gradually raise energy prices to cut consumption which has been rising rapidly due to a growing population.
"The IMF mission considers that an upward adjustment of energy prices over time will likely be needed to curb the growth of domestic energy consumption. International experience with energy price reform suggests that it needs to be well-planned, phased, and clearly communicated," the Fund said.
IMF expects the Saudi fiscal policy looks set to appropriately slow the pace of public spending growth this year after the large increases in 2011 and 2012 which will help contain inflation rate.
- Tunisian, Moroccan Chambers of Commerce meet to discuss economic partnership
- Winter wonderland: Dubai debuts Aspen Chalets with view of Ski Dubai
- Egyptian economic experts predict inflation rate will continue to climb
- Shoura Council: Expats cannot buy property in Mecca, Medina, Riyadh
- Tensions increase between Egypt, Italy over renewable energy projects