Saudi Arabia committed to reforms despite reversing pay cuts: IMF

Saudi Arabia is committed to austerity measures to balance its budget in the wake of low oil prices, despite its recent move to reverse pay cuts imposed last year, said Jihad Azour, director of the Middle East and Central Asia department at the International Monetary Fund (IMF).

The Kingdom is undertaking fiscal consolidation measures of a sizeable magnitude, he said, in response to a question by Argaam.

“Therefore, from time to time, you could allow certain fine-tuning of some of the measures,” Azour said in Dubai at the launch of the Fund’s Regional Economic Outlook for the Middle East, North Africa, Afghanistan and Pakistan (MENAP).

Saudi Arabia’s King Salman issued several royal decrees last month restoring bonuses and allowances for public sector employees and military personnel.

The bonuses – which had been cut under austerity measures amid lower oil prices in 2016 – were restored, due to higher revenue and a decline in the Kingdom’s budget deficit.

Despite the decision, the government recently confirmed its commitment to achieving a balanced budget by 2020, Azour added.

“Given the ample reserves they have, they can even smoothen their adjustments further,” he added.

Oil exporting governments throughout the region have been forced to tighten spending and adopt austerity measures and subsidy reforms as falling crude prices created large budget deficits.

In Saudi Arabia, several large-scale projects have been cancelled or postponed. Last month, the Kingdom’s finance minister Mohammed Al Jadaan said that they’ve identified up to SAR 17 billion ($4.53 billion) in cost cuts from reviewing state projects. The country is also expected to introduce more energy price reforms in the second half of 2017.

However, “reform fatigue” is a risk for the region, given that many countries are undertaking fiscal consolidation in a period where economic growth is insufficient for the adjustment, Azour said.

The IMF recommends that countries in the region focus on preserving capital expenditures with high productive impact, and use the opportunity provided by low oil prices to accelerate subsidy reform, particularly on energy and gasoline prices, he added.

Looking ahead, sustained fiscal adjustment remains critical for the MENAP region, given that oil prices are expected to remain “highly uncertain” over the medium-term, the IMF said in its outlook.

While the agreement between oil-producing countries to trim output last year has improved crude prices, reduced production will lead to slower growth among exporters in the region like Saudi Arabia.

The IMF recently reduced its 2018 growth forecast for the Kingdom on expectations that lower oil production under the OPEC deal and ongoing fiscal consolidation measures would weigh on the Saudi economy.

Saudi Arabia’s growth is now expected to slow to 1.3 percent in 2018, compared to the Fund’s January projection of 2.3 percent. 

Write to Jerusha Sequeira at jerusha.s@argaamnews.com