Measures taken by GCC countries so far are “impressive, but further cuts required. Saudi Finance Minister Ibrahim Al Assaf (L) escorts International Monetary Fund (IMF) Managing Director Christine Lagarde to a press conference following a meeting with Gulf Cooperation Council (GCC) finance ministers in the Saudi capital, Riyadh, on October 26, 2016. Fiscal reforms that the GCC has been implementing are “impressive” but further adjustments are needed, Christine Lagarde said during a visit to Riyadh this week.
The managing director of the International Monetary Fund (IMF) urged GCC countries to continue reining in spending but to phase in deficit reduction measures gradually, to lessen economic shocks. Lagarde was in Riyadh this week to meet officials from the GCC, including Saudi Arabia’s finance minister and King Salman Bin Abdulaziz Al Saud, and discuss the economic outlook for the region.
In a statement issued on Wednesday, she said further revenue-raising measures were required to manage the sustained period of low oil prices, and added that the IMF “stands ready” to support the GCC in its challenge.Lagarde said: “The reforms that the GCC countries have been implementing over the past year in response to the decline in oil prices are impressive. “Continued fiscal adjustment will be needed over the medium term. “Where possible, countries should phase in deficit-reduction measures gradually, while strengthening their medium-term fiscal frameworks and fiscal transparency to support the adjustment. Policies to support growth and employment will also need to continue.
“Over the past year, the IMF has further strengthened its relationship with the GCC countries through our regular country visits, our technical assistance, and our training program.“The IMF stands ready to continue to support the GCC countries in addressing their challenge of adjusting to the lower oil price environment.” On Saudi Arabia, Lagarde said that the IMF “welcomed” the kingdom’s Vision 2030 and National Transformation Program (NTP) aimed at diversifying the economy away from oil and called for the measures to continue over the medium term.
“Saudi Arabia has begun a major policy shift to respond to low oil prices,” she said. “Vision 2030 and the National Transformation Program (NTP) contain ambitious policy reforms to reduce the economy’s reliance on oil, strengthen non-oil growth, and increase employment opportunities. These reforms are very welcome.” She added: “Fiscal adjustment has started, with the government containing expenditures and raising additional revenues. These efforts should continue over the medium-term including through further increases in energy prices which are still low by international standards, further revenue-raising measures including from the planned introduction of excises and the VAT at the GCC level, and further spending restraint.”
Her comments came as Saudi Arabia’s finance minister Ibrahim Alassaf told reporters that the kingdom’s debt issues will not be limited to bonds, but be followed by other instruments like sukuk. Last week, the kingdom launched a mammoth $17.5 billion sale of international bonds, which surpasses the current record held by Argentina for its $16.5 billion emerging market sovereign bond sale in April. The IMF expects Saudi economic growth to bottom out at 1.2 percent this year, rebounding to 2 percent in 2017. Alassaf said the IMF’s growth forecasts were “reasonable”, according to Reuters.
Sources: QGN, Gulf Agencies, Reuters, BBC News, Bloomberg.