July 18, 2019 / 3:53 PM / a month ago

IMF lowers Saudi fiscal deficit forecast to 6.5% of GDP this year

DUBAI (Reuters) - The International Monetary Fund estimates Saudi Arabia will have a fiscal deficit of 6.5% of GDP this year, below a previous 7% estimate, but still well above the government’s own projection of 4.2%.

Fiscal consolidation remains key and a “more measured increase in capital spending” would help the kingdom to generate fiscal savings, the fund said in a statement on Thursday.

The Saudi economy, the largest in the Middle East, has suffered in recent years because of low oil prices and austerity measures aimed at reducing a huge budget deficit.

In 2017, it shrank for the first time since the global financial crisis almost a decade earlier, but last year it grew 2.2%, boosted by strong oil sector growth.

While exposing fiscal vulnerabilities, a boost in government spending this year has helped Saudi Arabia’s non-oil sector. The government said last month the sector grew 2.1% in the first quarter. The IMF expects it to strengthen by 2.9% in 2019.

Overall growth is expected to slow to 1.9%, the IMF said, confirming previous estimates, as the Saudi economy will be affected by OPEC-led oil production cuts.

Reporting by Davide Barbuscia; Editing by Frances Kerry

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