RIYADH: OPEC kingpin Saudi Arabia is forecast to post a budget deficit of 20 percent of gross domestic product because of the sharp decline in oil revenues, the IMF said Tuesday.
“Government spending in 2015 is expected to remain strong, partly due to a number of one-off factors, while oil revenues have declined,” an International Monetary Fund team said after visiting the Gulf kingdom.
“As a result, IMF staff projects that the government will run a fiscal deficit of around 20 percent of GDP in 2015.”
The report made no reference to the costly air campaigns Saudi warplanes are involved in, against ISIS in Syria and Houthi rebels in Yemen.
The projected deficit translates into around $130 billion (118 billion euros) as the IMF is projecting Saudi nominal GDP this year at $649 billion.
Riyadh is projecting a budget shortfall of just $39 billion.
The IMF said the decline in oil prices has resulted in a substantial decrease in revenues, but its impact on the rest of the economy has so far been limited by strong public spending. The IMF team projects Saudi growth this year at 3.5 percent, unchanged from 2014, but said the pace will slow to 2.7 percent in 2016.
Oil prices crashed from around $115 a barrel in June last year to just $46 in January before recovering to around $65.
Oil income makes up more than 90 percent of Saudi public revenues. The world’s largest exporter is currently pumping 10.3 million barrels of crude per day.
A sizable fiscal policy consolidation will be needed over the next few years to cut the deficit gradually.
“Going forward, the decline in government deposits will slow as the government starts to issue debt to finance the deficit,” the IMF said.
It also said the decline in oil revenues has emphasized the need for economic diversification, boosting spending efficiency and raising non-oil revenues.
Saudi firm Jadwa Research said the kingdom’s foreign reserves dropped by $49 billion in the first four months of 2015 following the dive in world oil prices.
The reserves, which were piled up over the past decade during high prices of crude, dropped from $732 billion at the end of 2014 to $683 billion at the end of April, Jadwa said in a report.
In March and April alone, the reserves dipped $31 billion, the report said.
In its regional economic outlook last month, the IMF estimated the oil price necessary to balance the Saudi budget at more than $100 a barrel.