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The International Monetary Fund (IMF) praised on Thursday Saudi Arabia’s efforts to implement reforms aimed at countering the effects of low oil prices, but warned Riyadh not to rush reforms and price hikes because doing so would hurt economic growth.
“Given the large drop in oil prices and the expectation that they will not increase significantly over the medium term, fiscal adjustment needs to continue. But it’s important to get the pace of this adjustment right--too quick will unnecessarily hurt growth, but too slow an adjustment will see an undesirably large build-up in debt,” the IMF said.
According to the IMF, the Saudis are on the right track of fiscal consolidation, but it is probably too rapid.
The international fund is advising authorities to proceed more slowly with reforms and to re-set the target to balance the budget in 2022 rather than in 2019.
In the lower-for-longer oil prices, oil growth is on track and as projected, but the non-oil growth seems weaker, the IMF economists said.
Last month, Saudi Arabia was said to be studying a plan to raise gasoline prices by the end of 2017 to bring them to parity with international prices—which would mean a rise of about 80 percent for octane-91 grade gasoline compared to current prices.
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The Saudi economy contracted by 1.03 percent over the second quarter of this year, following a 0.5-percent drop in the first quarter. The economy contraction accelerated because of the country’s participation in the OPEC oil production cut and because of disappointing growth in the non-oil industries.
This is the first time the GDP of the Kingdom has contracted in two consecutive quarters since the latest financial crisis took hold, and it is happening despite government efforts—led by Crown Prince Mohammed bin Salman—to launch the Vision 2030 economic diversification program that is supposed to wean the country off crude.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.