DUBAI – The IMF on Friday warned Saudi Arabia against boosting spending inthe wake of rising oil prices, urging the world’s top crude exporter toalso contain its wage bill.
The International Monetary Fund said in a report that a rise in spendingwould expose the Saudi budget if there was an unexpected drop in oilprices. The report emphasised “the importance of ensuring that spendingremains at a sustainable level in different oil price environments” and theneed to avoid a fiscal policy that would create undue volatility ineconomic activity.
Oil prices have rebounded strongly after major producers decided to cutoutput in late 2016. In June, they decided to raise production again. Saudirevenues jumped 67 percent in the second quarter of 2018, mainly due to asharp rise in oil income.
In the same period, public spending surged 34 percent, according togovernment figures. Around half of state spending goes on the public wagebill, according to the IMF which suggested “the workforce could begradually reduced through natural attrition”.
Saudi authorities told the IMF that the civil service system is underrevision with the help of the World Bank. Unemployment among Saudi citizensis a high 12.8 percent, rising to 31 percent among women. The country’s keychallenge is to create around 500,000 jobs for its citizens over the nextfive years, the IMF said while stressing the need for more posts within theprivate sector. As many as 1.4 million new jobs could be needed if femaleparticipation in the labour market rises by just one percentage point ayear until 2023, the report said.
The IMF praised the outcome of Riyadh’s reform programme that includedcutting subsidies, raising fuel and power prices and imposing taxes.”Higher oil prices should not slow the reform momentum,” the report said,stressing that “continued commitment to implementing wide-ranging reformswill help achieve the fiscal objectives and promote non-oil growth.”
Last month, the IMF raised Saudi Arabia’s growth forecast to 1.9 percentfor this year and the next. The Saudi economy contracted by 0.9 percentlast year, for the first time since 2009, due to the collapse in oil prices.
Riyadh’s budget deficit is expected to continue to narrow from 9.3 percentof GDP last year to 4.6 percent in 2018 and to as low as 1.7 percent nextyear, the IMF said. Saudi Arabia has posted a budget deficit for the pastfour consecutive years, totalling $260 billion. – APP/AFP