The IMF team led by Tim Callen held discussions from May 1 to May 12 on the 2016 Article IV Consultation with Saudi Arabia.
At the conclusion of the mission, Callen said: “The decline in oil prices is affecting the Saudi Arabian economy”.
“Real GDP growth is projected by IMF staff at 1.2 percent this year, down from 3.5 percent in 2015. Lower oil revenues have resulted in current account and fiscal deficits which are projected by IMF staff at around 9 and 14 percent of GDP, respectively, in 2016.
“Nevertheless, the financial assets held by the government remain high, providing a substantial cushion. The decline in bank deposits and the resulting tightening of liquidity conditions and rise in interbank interest rates have not yet impacted credit growth.”
At the conclusion of a similar mission to Nigeria in March, the executive board of the IMF projected a GDP growth of 2.3 percent in 2016 – lowest since democracy returned in 1999.
The board added that Nigeria’s government deficit will rise to about 3.7 percent of GDP, lesser than Saudi’s nine percent to 14 percent.
“Lower oil prices have significantly affected the fiscal and external accounts, decimating government revenues to just 7.8 percent of GDP and resulting in the doubling of the general government deficit to about 3.7 percent of GDP in 2015,” IMF said in Nigeria.
The IMF said the Saudi government policy of using a combination of deposit drawdowns and international and domestic debt issuance to finance the fiscal deficit is appropriate.
Unlike Nigeria, IMF said: “the exchange rate peg to the US dollar continues to serve Saudi Arabia well given the structure of the economy”.
TheCable
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