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 subsidized domestic energy products will rise to international levels later than previously envisaged, Al-Jadaan said in an interview in Washington on 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.
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.”
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 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, Al-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 said. 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,” Al-Jadaan said. The government has a separate program called the national transformation plan, with a budget of 370 billion riyals. Spending under that program will rise to 72 billion riyals next year, from 60 billion, Al-Jadaan said.