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Saudi Arabia needs oil to trade at US$85 a barrel to fill its budget gap, IMF’s head for the Middle East and Asia said today.
“The improvement in the overall economic conditions with growth recovering this year - it is expected to be at 1.8 percent - will help them to maintain the pace of fiscal adjustment and at the same time will allow the economy to grow again,” Jihad Azour said, as quoted by Reuters.
The Kingdom presently plans to have a balanced budget by 2023, but this will only happen if oil prices are high enough, it seems. For this year, Saudi Arabia has stipulated a budget deficit of around US$52 billion, which represents 7.3 percent of GDP.
The bad news is that the oil price that the Kingdom needs to make ends meet is rising. Last year, Azour said, it was US$83 a barrel. This year, it will be between US$85 and US$87 a barrel. The silver lining, according to some analysts, is that the discrepancy between breakeven and actual oil price will stimulate the government to persist with its reform efforts.
“I think the fact that we are currently witnessing a recovery globally and in the region, and the fact that the oil price is going up, shouldn’t at any point in time be considered as a way for them to relax efforts and to be complacent,” the IMF official said.
Meanwhile, Saudi Arabia’s Finance Minister told CNBC that oil prices will not have any impact on the pace of reforms the Kingdom has undertaken, even though he acknowledged the price improvement over the last two years has helped the Kingdom reduce its deficit by as much as 40 percent.
"Higher oil prices will only help reduce the deficit and build reserves, we will continue our reform,” he said. “I assure you that there is a lot of excitement about reform and when you see results you get more energy to do more because you can see that it's working and helping the economy.”
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.