IMF urges Saudi Arabia to contain spending despite oil price rise

The organisation says a rise in spending would expose the Saudi budget if there was an unexpected drop in oil prices.

    The government in Riyadh plans sell of shares in national oil giant Saudi Aramco to raise funds [Reuters]
    The government in Riyadh plans sell of shares in national oil giant Saudi Aramco to raise funds [Reuters]

    The International Monetary Fund (IMF) has warned Saudi Arabia against increasing public spending as oil prices rise.

    In a report issued on Friday, the IMF said that a rise in spending would leave the Saudi budget exposed, should there be an unexpected drop in oil prices. 

    The report emphasised the importance of ensuring that spending remains "at a sustainable level in different oil price environments" and to avoid a fiscal policy that would create undue volatility.

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    Oil prices have rebounded strongly after major producers decided to cut output in late 2016. In June, they decided to raise production again.

    Saudi revenues jumped 67 percent in the second quarter of 2018, mainly due to a sharp rise in oil income, while public spending surged 34 percent, according to government figures.  

    Riyadh's budget deficit is expected to continue to narrow from 9.3 percent of GDP last year to 4.6 percent in 2018 and to as low as 1.7 percent next year, the IMF said.

    Around half of state spending goes on the public sector wage bill, according to the IMF which suggested "the workforce could be gradually reduced through natural attrition".

    Saudi authorities told the IMF that the civil service system is under revision with the help of the World Bank.

    Unemployment among Saudi citizens is at 12.8 percent, and sits at 31 percent among women.

    Is Saudi Arabia biting off more than it can chew? | Counting the Cost

    High unemployment 

    The country's key challenge is to create around 500,000 jobs for its citizens over the next five years, the IMF said while stressing the need for more posts within the private sector.  

    The Saudi economy contracted by 0.9 percent last year, for the first time since 2009, due to the collapse in oil prices.

    Earlier this week, a planned initial public offering in the state's oil company, Aramco, stalled when it became clear that Riyadh might not achieve the valuation it wanted.

    However, government officials said the plans had not been cancelled.

    SOURCE: News agencies


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