Saudi Arabia mulls slower subsidy and spending cuts
washington — Saudi Arabia may cut energy subsidies more gradually and take longer to balance its budget, Finance Minister Mohammed Al Jadaan said, as the kingdom seeks to soften the impact of its drive to repair public finances.
The prices of some subsidised domestic energy products will rise to international levels later than previously envisaged, Al Jadaan said in an interview in Washington, 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.
Al Jadaan’s remarks come after an assessment by IMF staff, in which they 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,” Al Jadaan said.
“We are taking IMF advice very seriously,” he added. 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,” Al Jadaan said.
And while the government is on track to reduce the budget deficit to below 10 per cent of GDP this year, authorities don’t see the need “to go from 10 per cent to zero in two years”, he said.
The government will also accelerate its SR200 billion ($53 billion) stimulus programme to boost growth, Al Jadaan said. About SR40 billion 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 said. — Bloomberg