Saudi Arabia is likely to use surplus oil revenue to rebuild reserves, breaking with its historical practice of boosting spending when crude prices rise, according to the International Monetary Fund.
“The message that we very strongly got was that the expenditure path set out in the budget will be stuck to, regardless of where oil prices go to, which I think is the right thing to do,” Tim Callen, the IMF mission chief to the kingdom, said in an interview late Monday. Sticking to targeted spending “allows you then to really build the financial assets that have been run down in recent years.”
Crude prices around $75 a barrel are only slightly lower than what Saudi Arabia needs to balance the budget, according to IMF estimates. They may rise further as the global economy rebounds from the impact of the pandemic and the International Energy Agency warned on Tuesday that the oil market would remain tight unless Saudi Arabia and its OPEC+ allies boost production.
“In the past, the weakness of the Saudi budget process was as oil prices go up spending would go up, and when prices turn around you then have to make difficult decisions,” Callen said. “We don’t think that pro-cyclicality is helpful for the economy, so it’s exactly right to stick with the expenditure as it was set out, even if oil prices are higher.”
Saudi Arabia set spending this year at 990 billion riyals ($264 billion), while revenue is projected to rise to 849 billion riyals. As a result of that deficit, and transfers to the kingdom’s sovereign wealth fund, net foreign assets dropped to their lowest level in about 10 years in May.
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