In the face of an International Money Fund warning that Saudi Arabia needs to cut government spending, Finance Minister Dr. Ibrahim Al-Assaf told Al Arabiya the Kingdom has solid economic policies.
“We were able in the past few years to formulate medium- range fiscal policies,” Al-assaf told Al Arabiya television on Tuesday when asked to comment on the latest IMF assessment of the Saudi economy.
“And the reason is because we built suitable reserves, especially investments that allow us to implement fiscal policies even if the oil prices fluctuate as we have witnessed in the past,” he said.
The interview came as the IMF said Riyadh should alter spending to preserve the country’s oil wealth for future generations.
“While the government has built significant policy buffers, fiscal spending is above the level consistent with an intergeneration ally equitable drawdown of oil wealth,” the Fund said in an annual assessment of the Saudi economy released Tuesday.
But Assaf said the Kingdom had made secure investments focusing on infrastructure, human resources and social welfare. He noted the country’s economy had not been affected by the Euro zone crisis, would keep economic growth at 5.9 percent, and that its currency exchange with the United States was also fair and optimal, he said.
Asked to comment about the IMF’s criticism, he said “the country is with the IMF but sometimes it does not agree with it when evaluating Saudi policies.”
The IMF did not specify an appropriate level of spending, but said the government should be flexible in providing social welfare benefits, broaden its tax base and ensure its expenditure was efficient.
The OPEC member, which overshot its annual budget plans by an average 23 percent in the past decade, outlined spending of 690 billion riyals in its 2012 budget.
Due to heavy spending, the Gulf country’s dependency on oil has risen notably. The price of crude that is needed to balance the government budget is projected to rise to $98 per barrel by 2016 from an estimated $80 in 2011, the IMF said in April.
However, robust oil prices, currently above $110 per barrel, have been helping to boost Saudi Arabia’s fiscal cushion. The central bank’s net foreign assets rose to a record $591 billion in June.
Other parts of the report praised Saudi Arabia’s economic policies, including its help to stabilize global oil markets in 2011 and commitment to provide $15 billion of additional resources to the IMF.
The Fund said the kingdom’s near-term economic outlook was broadly favorable, keeping its 2012 growth forecast at 6 percent. Adverse spillovers from unrest in the region and the euro area crisis have been limited so far, it added.
The IMF also underlined the need to prevent any inflation pressures caused by robust growth through a proactive use of liquidity and macro prudential policy tools, raising its 2012 forecast to 5.2 percent from 4.8 percent seen in April.
Saudi annual inflation slipped to 4.9 percent in June, its lowest level since August 2011.