A $90B boost by 2020
Saudi Arabia may get this much of a budget boost by 2020, thanks to new taxes and the planned reform of fuel subsidies and prices, according to latest projections from the IMF.
ankara — Saudi Arabia may get a budget boost of more than $90 billion by 2020 from new taxes and the planned reform of fuel subsidies and prices, International Monetary Fund (IMF) projections show.
Additional non-oil revenue, including from a value-added tax and excises on tobacco and energy drinks, is forecast to reach 4.8 per cent of gross domestic product, estimated by the IMF to be $722 billion in 2020. Net gains from energy price reforms may total SR210 billion ($56 billion), including the cost of support programs to help households and industry adapt. The estimates were included in a report compiled after a staff visit in May. The IMF sees Saudi Arabia’s long-term plan for an economy less reliant on oil as a catalyst to improve the kingdom’s fiscal balance, after a plunge in crude prices triggered a budget deficit of more than 16 per cent of GDP last year. But the Washington-based lender has also advised the government to roll out spending cuts and austerity measures more gradually, even it if means pushing back a selfimposed target of balancing the budget by 2019.
A slower implementation “would give households and businesses more time to adjust and the authorities more time to ensure compensation mechanisms are fully opera- tional and effective,” the IMF said in the report released Thursday. “The authorities were not convinced, believing that a relatively fast pace of price increases would minimise implementation risks, while the household allowances and industry support would minimise the impact on the economy.”
The biggest Arab economy has contracted for two consecutive quarters as the kingdom continues to suffer from low oil prices and businesses struggle to cope with the reforms. In the past two years, authorities have cut spending, curtailed energy subsidies and imposed the taxes on tobacco and soda, as well as a levy on expatriates’ families. The value-added tax is set to be introduced from January 2018.
The IMF expects Saudi Arabia’s economy to expand 0.1 per cent this year and 1.1 per cent in 2018, while the non-oil sector — the main engine of job creation — is forecast to grow 1.7 per cent and 1.3 per cent respectively. Growth will pick up in the medium term as structural reforms are implemented and the shortfall in the nation’s current-account will be financed by a combination of international reserves and borrowing, the fund said.
Saudi policy makers indicated that they were considering “the appropriate pace of fiscal adjustment given the weak growth,” the IMF said. The fund warned that tax revenue may decline due to consumer behavior, and that a “rushed VAT introduction often leads to poor compliance in registration as well as in filing and payment which prove difficult to correct.”
Saudi Arabia has partly compensated for the loss of oil revenue by using its foreign assets, which have fallen from a high of $737 billion in August 2014. The IMF predicts they will continue to decline to $335.1 billion in 2022 from a projected $472.6 billion this year. — Bloomberg