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The OPEC oil production cuts have led the International Monetary Fund (IMF) to slash its growth outlook for Saudi Arabia, forecasting 0.4 percent growth in this year compared with the 2 percent that it predicted last October.
In its World Economic Outlook report update, the IMF cited the impact of the recent deal by OPEC to reduce output as the main reason for trimming the forecast.
In OPEC’s deal from November, the cartel’s de facto leader and biggest producer Saudi Arabia pledged to cut 486,000 bpd, lowering production to 10.058 million barrels per day, but last week the Kingdom announced it had already cut to below 10 million barrels.
For 2017, Saudi Arabia expects oil revenues to grow by 46 percent compared to last year’s projections, and non-oil revenues also to increase by some 6.5 percent. Still, non-oil revenues expected for this year are more than half the amount of the projected oil revenues.
In its budget plan for 2017, Saudi Arabia said that the 2016 deficit was lower than the 2015 shortfall in nominal value. Last week, PricewaterhouseCoopers advised the Kingdom on US$20 billion worth of projects it could cancel in order to reduce the budget deficit it had amassed with the low oil prices of the past two years. The projects that are under review include housing, health, education and transport contracts.
Related: Saudis, Kuwait, Algeria Cut More Than Pledged To OPEC
It plans to borrow as much as US$15 billion this year on international debt markets to help fund its spending plans, following last year’s $17.5 billion sovereign bond sale.
Such reforms, however, will move slowly in the Kingdom, and the public is sensitive to pay cuts.
It’s been decades since Saudi Arabia has had to deal with a budget deficit. While it had a deficit equal to 15 percent of its GDP in 2015, it managed to decrease that to 12.6 percent in 2016.
The IMF also cut Mexico’s and Brazil’s growth estimates. The fund halved its 2017 growth outlook for Brazil, expected now to grow 0.2 percent compared with prior 0.5 percent prediction, citing weaker-than-expected economic activity.
Citing Mexico’s diplomatic tit-for-tat with U.S. President-elect Donald Trump, the IMF slashed its projection for Mexico’s growth to 1.7 percent this year from 2.3 percent from October. At the same time, the fund raised its forecast for U.S. economic growth in 2017 and 2018 on the back of president-elect Donald Trump’s tax and spending plans.
By Damir Kaletovic for Oilprice.com
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Damir Kaletovic is an award-winning investigative journalist, documentary filmmaker and expert on Southeastern Europe whose work appears on behalf of Oilprice.com and several other news…