WASHINGTON — Growth in OPEC heavyweight Saudi Arabia will slow to its lowest rate in seven years, the International Monetary Fund said Tuesday, as oil prices continue their dramatic fall.
Revising down its last forecast, the IMF predicted that the Saudi economy will grow by just 1.2 percent in 2016 – compared with the 2.2 percent it estimated in October.
This would be the worst growth rate for Saudi Arabia since 2009, when the economy contracted by 2.1 percent because of the sharp fall in crude prices due to the global financial crisis.
In its World Economic Outlook Update, the IMF also projected growth in 2017 to be a modest 1.9 percent, down one percentage point from its October forecast.
Saudi’s economy, heavily dependent on oil revenues, grew by 3.4 percent last year, the IMF said.
The new downgrade comes after Saudi Arabia posted a record budget deficit of $98 billion (90 billion euros) last year and projected an $87 billion shortfall for the current year. The action also comes after the kingdom took unprecedented measures to reduce huge subsidies on fuel products, electricity, water and other services in a bid to boost non-oil revenues and rationalize consumption.
“Lower oil prices strain the fiscal positions of fuel exporters and weigh on their growth prospects,” the IMF said. It said the economy of the whole Middle East, North Africa, Afghanistan and Pakistan, which includes oil importers and exporters, is forecast to post higher growth this year and the next but at a slower rate due to conflicts and low oil exports.
The region is forecast to grow by 3.6 percent this year and the next, down 0.3 percent and 0.5 percent, respectively, on October projections. The region grew 2.8 percent in 2014 and 2.5 percent last year.
“Higher growth is projected for the Middle East, but lower oil prices, and in some cases geopolitical tensions and domestic strife, continue to weigh on the outlook,” the Fund said.
To finance the deficit, Saudi Arabia withdrew around $100 billion from its fiscal reserves in the first 11 months of last year. The kingdom also issued debt worth around $30 billion.
Riyadh still has reserves of around $630 billion.
Oil prices have crashed from around $115 a barrel in June 2014 to under $30 a barrel this week. The IMF said the price of oil averaged $51 a barrel last year and is projected to be $42 a barrel this year and $48 a barrel in 2017.