Saudis mull slower sub­sidy, spend­ing cuts

The Daily Star (Lebanon) - - BUSINESS -

Saudi Ara­bia may cut en­ergy sub­si­dies more grad­u­ally and take longer to bal­ance its bud­get, Fi­nance Min­is­ter Mo­ham­mad al-Jadaan said, as the king­dom seeks to soften the im­pact of bud­get re­pair moves.

The prices of some sub­si­dized do­mes­tic en­ergy prod­ucts will rise to in­ter­na­tional lev­els later than pre­vi­ously en­vis­aged, Jadaan said in an in­ter­view in Wash­ing­ton Thurs­day, where he is at­tend­ing the In­ter­na­tional Mone­tary Fund’s an­nual meet­ing. He also said au­thor­i­ties will re­frain from rush­ing to meet a tar­get to bal­ance the bud­get by 2019 as they as­sess how the econ­omy is re­act­ing to fis­cal pol­icy. “We will move with our sched­ule, but ar­eas where we think ac­tu­ally we can ad­just the re­forms so that they’re not as ag­gres­sive, we will,” he said.

A bal­anced bud­get and the sub­sidy cuts are cen­tral to the king­dom’s long-term plan to wean the econ­omy off oil, af­ter the plunge in crude prices caused the short­fall to reach more than 16 per­cent of gross do­mes­tic prod­uct in 2016. But the gov­ern­ment’s aus­ter­ity drive, which in­cluded slash­ing spend­ing and cur­tail­ing state largess, caused non-oil eco­nomic growth, the en­gine of job cre­ation, to stag­nate.

Jadaan’s re­marks come af­ter an IMF as­sess­ment, which said the king­dom could af­ford a slower pace of aus­ter­ity to avoid crip­pling the econ­omy. “This is pos­si­bly the first time for the IMF to tell a coun­try to slow down,” Jadaan said. “We are tak­ing IMF ad­vice very se­ri­ously.”

Even be­fore that IMF ad­vice, the gov­ern­ment had al­ready aban­doned some of its at­tempts to save money, when salary and ben­e­fit cuts for state em­ploy­ees were re­versed.

Un­der the lat­est sub­sidy plans, the prices of some en­ergy prod­ucts might fall short of in­ter­na­tional lev­els this year, but would be grad­u­ally in­creased “over a longer pe­riod of time,” Jadaan said. And while the gov­ern­ment is on track to re­duce the bud­get deficit to below 10 per­cent of GDP this year, au­thor­i­ties don’t see the need “to go from 10 per­cent to zero in two years,” he said.

The gov­ern­ment will also ac­cel­er­ate its 200 bil­lion riyal ($53 bil­lion) stim­u­lus pro­gram to boost growth, Jadaan said. About 40 bil­lion riyals have been com­mit­ted so far on hous­ing and an in­dus­trial de­vel­op­ment fund, he said. A “sig­nif­i­cantly” higher amount will be an­nounced be­fore the end of this year and then spent as needed, he added.

The pro­gram aims to cush­ion the im­pact of re­form on Saudi busi­nesses. “We’re fo­cus­ing on dis­tressed com­pa­nies that are vi­able and add value to the econ­omy and to em­ploy­ment, but are run­ning into dif­fi­cul­ties,” Jadaan said. The gov­ern­ment has another pro­gram, the na­tional trans­for­ma­tion plan, with a bud­get of 370 bil­lion riyals. Spend­ing un­der that pro­gram will rise 12 bil­lion riyals to 72 bil­lion riyals in 2018, Jadaan added. – Bloomberg News

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