Fossil fuel giant must continue efforts to diversify economy away from oil, gas, International Monetary Fund says
By Ed King
High public spending and falling oil prices threaten Saudi Arabia’s economic health, the International Monetary Fund (IMF) warned on Monday.
Publishing the results of a recent consultation with the Kingdom, the Washington-based lender said it should continue moves to diversify its economy away from oil revenues.
The country’s export revenues from January to May 2015 fell to $52 billion from $60 billion over the same period in 2014, draining government cash reserves.
“Directors noted that the sharp drop in oil revenues and continued expenditure growth would result in a very large fiscal deficit this year and over the medium term, eroding the fiscal buffers built up over the past decade,” said the IMF.
Oil prices have fallen from around $110 a barrel of oil in June 2014 to under $50 in August 2015, due in part to a Saudi strategy of keep taps running to drive competitors out of business, such as the US shale industry.
The Saudi banking sector could weather lower prices, the IMF said, but predicted GDP would slow to 2.8% in 2015 and 2.4% in 2016.
“The decline in oil prices has increased the importance of structural reforms to switch the focus of growth away from the public sector and toward the private sector,” it said.
The government would continue to “focus on reforms that aim to increase the employment of nationals in the private sector and diversify the economy away from its reliance on oil,” the report added.
Saudi Arabia holds the world’s second-largest oil reserves, and has fiercely guarded its right to produce hydrocarbons at ongoing UN talks to tackle climate change.
Earlier this year Saudi envoy Khalid Abuleif told RTCC oil and gas would be “part of the future global climate solution”, dismissing moves to secure a mid-century zero emissions goal.
Still, oil minister Ali al-Naimi says the country is planning significant solar energy investments in the medium term to meet domestic power requirements.
The country’s main renewable energy research centre said the Kingdom could get a third of its power, equivalent to more than 40,000 megawatts (MW), from solar power by 2032.