Washington: The International Monetary Fund has urged Saudi Arabia to push ahead with measures to cut government wage and subsidy spending, while also taking steps to protect the welfare of low-income households.
The Washington-based lender "supported the authorities' planned medium-term fiscal consolidation but emphasized the need to continue enhancing the social safety net in the near term to support low-income households," according to a statement issued after its regular Article IV consultation with the government.
The IMF also revised its economic growth projection for the kingdom to 2.4 per cent from 2.1 per cent earlier, as it gradually recovers from last year's downturn. The oil-sector economy is expected to contract 0.4 per cent as production is set to remain in line with the OPEC+ agreement, while non-oil growth is seen at 4.3 per cent, an upward revision from 3.9 per cent in May.
"The economy is recovering well," according to the fund, but "while central government fiscal consolidation will be a drag on growth, it is expected to be offset by higher Public Investment Fund investment and strong private demand."
The Arab world's largest economy suffered a steep downturn in 2020, instigated by the double whammy of lower oil prices that coincided with the spread of the coronavirus pandemic. The government led measures to cushion the impact of the fallout; it's tripled value-added tax, cut expenditure plans and raised import fees.
Net foreign assets last year shrank at the fastest pace in at least two decades. In April, the reserves fell to their lowest level in 10 years. The fund "encouraged the authorities to maintain the fiscal reforms introduced last year, press ahead with planned energy and water price reforms, and consider ways to rationalize the government's wage bill."