International Monetary Fund: Saudi Arabia's economy stagnant as unemployment rises

Investors monitor stock exchange at the Saudi Stock Exchange, or Tadawul. (file photo)

The International Monetary Fund (IMF) says Saudi Arabia has a weak economic growth and a rising unemployment level, advising the country to slow down austerity measures it has been adopting in order to curb a huge budget deficit.

The IMF’s latest report on its annual economic consultations with the kingdom, published Thursday, projected a below 2 percent non-oil growth for Saudi Arabia in 2017, down from 4 percent in 2015, while overall economic growth was expected to dip close to zero.

Experts attribute the weak growth to the kingdom’s lower production of crude oil in line with an agreement by the Organization of the Petroleum Exporting Countries (OPEC) to reduce output in an attempt to help boost the prices.

Coupled with the recently announced unemployment rate of 12.8 percent, the IMF report paints a bleak economic picture for the oil-rich kingdom, which has been cutting spending while raising taxes and fees to curb by 2020 a huge budget deficit that stood around $98 billion in 2015.

Tim Callen, the IMF’s Saudi mission chief, said while gap was getting narrower, the pace of fiscal consolidation "is probably too rapid" and does not give households and businesses enough time to adjust.

"The planned fiscal consolidation should proceed more slowly," Callen told reporters Thursday during a webcast.

“The strong fiscal buffers, the availability of financing, and the current cyclical position of the economy mean that rapid fiscal consolidation is neither necessary nor desirable,” the IMF said in its report.

The fund noted that although Riyadh could safely delay balancing the budget until 2022, it could not convince Saudi officials to do so.

Unlike the IMF, which thinks domestic fuel and water price hikes set out in the deficit-cutting plan should be delayed, Saudi officials believe a fast pace of hikes will make them easier to introduce.

“They saw merit in pushing ahead quickly with the fiscal reforms, particularly as they felt the compensation mechanisms they were developing to support households and businesses would limit the economic impact,” the report said.

It also noted that Saudi officials seemed to have felt the impact and were considering making changes to their austerity plans.