The IMF said real non-oil growth is expected to further strengthen to 2.9 percent in 2019 [File: Saudi Aramco/Reuters]
This new forecast is well above the government’s projections, signaling that economic performance is not keeping pace with spending.
The IMF’s figure is based on assumptions that Saudi oil output will average 10.2 million barrels per day and oil prices will average $65.50 per barrel in 2019.
The Saudi government has forecast a budget deficit of 4.2 percent of GDP this year, compared with 4.6 percent in 2018.
The IMF said that the introduction of a value-added tax has been very successful, but that the Saudi government should consider raising the rate from five percent, which is low by global standards.
Reduction in government wages, smaller increases in capital spending, and better targeting of social benefits will all yield budgetary savings, the IMF said.
Jihad Azour, director of the IMF’s Middle East and Central Asia Department, told the Reuters news agency last month that the Saudi budget deficit this year could reach almost eight percent, but also said that estimate was likely to be revised.
“Higher government spending has supported growth and the implementation of reforms, but has increased medium-term fiscal vulnerabilities,” the IMF said.
“Despite the budget surplus in the first quarter, the team projects that the fiscal deficit will rise to seven percent of GDP in 2019.”
Saudi Finance Minister Mohammed al-Jadaan said last month that the kingdom recorded a budget surplus of 27.8 billion riyals ($7.4bn) in the January-March period, its first quarterly surplus since oil prices plunged in 2014.
The IMF said real non-oil growth is expected to further strengthen to 2.9 percent in 2019, boosting overall economic growth to 1.9 percent.
It said the increase in oil prices since the turn of the year is boosting confidence, but it was difficult to assess future movements in the oil market given uncertainties about production in some key exporting countries.
Brent crude futures were trading at $71.60 per barrel on Wednesday.
Saudi central bank governor Ahmed al-Kholifey predicted earlier this year that the kingdom’s economic growth in 2019 would be “no less than two percent”.