Don't Tighten Fiscal Policy Too Fast, IMF Warns Saudis

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The International Monetary Fund warned Saudi Arabia on Wednesday not to tighten fiscal policy too fast, saying rapid cuts to the government's budget deficit could damage the economy, the International New York Times reported on a Reuters story. Tim Callen, head of an IMF team which held annual consultations with Saudi officials last week, said Riyadh's goal of balancing its budget was appropriate. Low oil prices in the past couple of years have pushed it deep into the red. But Callen added, "The target of balancing the budget, however, does not need to be met in 2019 as set out in the Fiscal Balance Program given Saudi Arabia’s strong financial asset position and its low debt. "A more gradual fiscal consolidation to achieve budget balance a few years later would reduce the effects on growth in the near term while still preserving fiscal buffers to help manage future risks." Riyadh has pledged to eliminate the deficit, which totalled $79 billion (£61 billion) last year, by 2020 through cuts to spending and energy subsidies as well as sharp increases in fees and taxes. The strategy is working; the deficit shrank 71 percent from a year earlier to $6.9 billion in the first quarter of 2017, about half the government's original projection. But the austerity steps have slowed growth in the non-oil part of the economy to near zero. Read more. (Subscription required.)