Saudi Arabia ‘on right path’ to overcome weak oil prices
However, the Saudi government’s 2016 budget shows it is giving serious consideration to fiscal consolidation
While weaker oil prices present a serious challenge to the growth outlook for Saudi Arabia, fiscal consolidation efforts by the government should see the country avoid recession, according to a new ICAEW report.
The report Economic Insight: Middle East Q1 2016, produced by Oxford Economics, ICAEW’s partner and economic forecaster, indicates depressed oil prices will compound economic concerns in a region already facing issues over fiscal sustainability, structural economic weaknesses and deepening conflict in Iraq, Libya, Syria and Yemen.
However, the Saudi government’s 2016 budget shows it is giving serious consideration to fiscal consolidation.
The government announced a year-on-year decline in public spending for the first time in 14 years, as well as plans to reduce energy subsidies starting this year.
Other reforms include capping the public wage bill, the introduction of taxes on goods including tobacco and soft drinks, more privatization and the establishment of a new finance unit to oversee a medium-term expenditure framework.
“The near-term objective for Saudi Arabia will be to maintain financial stability,” said Michael Armstrong, FCA and ICAEW Regional Director for the Middle East, Africa and South Asia (MEASA).
The report also shows that GDP growth in Saudi Arabia over 2016 is expected to reach 1.2%. Fiscal consolidation measures are already underway.