The world’s largest oil exporter, Saudi Arabia, is expected to keep its careful government spending policy this year, regardless of how high oil prices would go, a senior official at the International Monetary Fund (IMF) told Bloomberg in an interview this week.
The IMF, which has just completed its regular mission to Saudi Arabia, expects Saudi Arabia to prefer to replenish fiscal reserves now that oil prices are $75 a barrel, after the 2020 crash cost many Middle Eastern producers a lot of oil revenues.
“The message that we very strongly got was that the expenditure path set out in the budget will be stuck to, regardless of where oil prices go to, which I think is the right thing to do,” Tim Callen, the IMF mission chief to Saudi Arabia, told Bloomberg.
This is a break from the past when the Kingdom was splashing the oil money on more and more expenditure when oil prices—and consequently, oil revenues—were high.
Last year, however, Saudi Arabia was forced by oil market circumstances to implement some unpopular austerity measures, including a triple increase in value-added tax (VAT) and the cancellation of so-called cost-of-living allowances for civil servants.
“Stick with the reforms that you’ve been doing and don’t reverse them,” the IMF’s Tim Callen said of the best possible path forward for the Kingdom.
$60 oil would help Saudi Arabia cut its budget deficit to below 5 percent of gross domestic product (GDP) this year, according to estimates from Moody’s from May.
To compare, in 2020, the Kingdom’s fiscal deficit widened in 2020 to 11.3 percent of GDP mostly driven by a 30 percent decline in oil revenues, the IMF said last week at the conclusion of its latest assessment of Saudi finances and reforms.
“Directors underscored that structural reforms should continue to be implemented to diversify the economy and promote sustainable, inclusive growth. In this context, they supported recent reforms to increase female employment and to enhance the job mobility of expatriate workers,” the IMF said.