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Saudi economic growth will slow to 4.4% in 2013 from 6.8% last year due to an expected fall in oil production, and cuts in government spending, the International Monetary Fund said yesterday.
“Overall GDP growth is expected at 4.4%... 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%, 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 $81bn and $103bn 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 $26.4bn by the end of 2012 from $36.1bn 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.
Meanwhile, the IMF is not worried about Dubai’s ability to meet its upcoming debt obligations, Masood Ahmed, director of the IMF’s Middle East and Central Asia department, told reporters yesterday.
Standard Chartered bank estimates Dubai and its government-related entities (GREs) — companies and agencies backed by the state — have around $48bn of debt obligations coming due between 2014 and 2016.
The emirate was looking at alternative means to repay its debt it asset sales did not materialise, a senior government official said earlier in May.
In Egypt, the inflation is expected to climb to 10.9% this year, the highest level since 2010, the IMF said yesterday, more than it expected in April.
“Inflation is expected to rise in Egypt, Jordan, Morocco, and Tunisia, reflecting recent and planned subsidy cuts and, in some cases, pressure from monetization of fiscal deficits and supply shortages,” the IMF said in its regional outlook.
The Fund expected Egypt’s inflation of 8.2% in 2013 in its half-yearly analysis of the world economy published last month.
In 2014, however, price pressures may be a bit lower than previously thought as the IMF cut the country’s consumer price growth prediction to 11.6% from 13.7% seen in April, the report showed.
The IMF did not change economic forecasts for other Middle East and North African oil importers and exporters in its new report, which closely follows the global outlook.
Egypt’s urban consumer inflation accelerated to 8.1% in the year to April, fuelled by rising food and energy prices and a struggling pound currency.
It is expected to climb further as the government pushes through tax hikes and subsidy cuts to secure a $4.8bn loan from the IMF after two years of economic and political upheaval.
Negotiations with the IMF have stumbled repeatedly over government resistance to the austerity measures needed to get the fiscal deficit under control.
The IMF expects Egypt’s budget deficit to widen to 11.3% of gross domestic product in the fiscal year, which ends in June, from 10.7% in the previous year, but narrow again to 8.7% in the fiscal 2013/14.
Egypt’s newly-appointed Investment Minister Yehya Hamed said earlier this month that the shortfall will be 11.5% of GDP in the 2012/13 year.