IMF Forecasts Saudi Arabia Budget Deficit to Stand at 1.2% of GDP in 2023

In its latest assessment report released on Wednesday, the International Monetary Fund (IMF) forecasts Saudi Arabia to shift from a surplus of 2.5 percent in 2022 to a fiscal deficit of 1.2 percent of GDP in 2023.

The Saudi government is anticipating another year of budget surplus, marking the second consecutive year, although it is expected to be slimmer compared to the surplus recorded in 2022.

Saudi Arabia experienced a significant economic growth of 8.7 percent last year, driven by high oil prices, resulting in the country achieving its first budget surplus in nearly ten years. However, the anticipated production cuts and decrease in oil prices for the current year are likely to impact oil revenues and potentially slow down overall economic growth.

On Tuesday, Saudi Arabia and Russia said they would extend voluntary oil cuts to the end of the year, despite a rally in the oil market and analyst expectations of tight supply in the fourth quarter, sending prices higher.

Overall economic growth in 2023 is projected to slow sharply to 1.9 percent according to the IMF, with oil GDP growth to decline by 2.5 percent this year; non-oil GDP growth is projected at 4.9 percent this year.

“The outlook is positive – with non-oil GDP growth momentum expected to remain strong – despite an uncertain external environment,” the IMF said in its Article IV country report, adding risks to the outlook were balanced.

Government-led reforms and the growth of private investment in new sectors has supported non-oil economic growth in Saudi Arabia, a key element of Vision 2030, the kingdom’s economic transformation plan overseen by Crown Prince Mohamed bin Salman.

Vision 2030 is a vast economic transformation plan into which the government has been pouring hundreds of billions of dollars and aims to diversify the kingdom’s economy away from oil.

The IMF recommended maintaining the VAT rate at 15 percent, the highest among Gulf states, as well as energy subsidy reforms which should be accompanied by social programmes to limit the impact on vulnerable groups. 

(Reuters)