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IMF: inflation a potential risk for strong Saudi economy

Pedestrians walk near the International Monetary Fund headquarters building in Washington on Sunday, May 15, 2011.

WASHINGTON: Saudi Arabia faces a possible inflation risk due to buoyant growth that may warrant policy action to prevent the economy from over-heating, the International Monetary Fund said on Monday.

In a regular assessment of the oil-rich kingdom's economic health, the IMF also urged it to take advantage of large budget surpluses as insurance against future oil price uncertainty.

"Macroeconomic policies need to remain vigilant for signs that continued strong economic growth is leading to increased inflationary pressures," the IMF said in a statement at the end of a staff mission to Saudi Arabia for the review.

It expects Saudi growth, outside of the oil sector, to notch 7.6 percent in 2013, although overall growth will be a more moderate 4.4 percent, due partly to an expected decline in oil output this year compared to 2012.

Against this background, inflation has picked up to around 4 percent. The IMF said it was contained at this level, but urged the authorities to be ready to act if price pressures rose.

"If inflation were to pick up more than expected or evidence of supply bottlenecks were to emerge, then either macro-prudential policy would need to be adjusted or capital spending projects slowed," it said.

High world oil prices have contributed to a string of large Saudi budget surpluses in recent years, as well as sharply reduced levels of public debt and the accumulation of a considerable buffer of financial assets.

"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.

 

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