In order to balance its state budget, Saudi Arabia needs oil prices to increase to roughly US$85 to US$87 a barrel, according to the International Monetary Fund (IMF).
The kingdom has implemented a strategy to balance its budget by 2023, even though its GDP contracted last year for the first time since 2009.
Despite last year’s GDP shrinkage, the IMF forecasts 1.8-percent growth this year for Saudi Arabia, in part due to the fading of a global deal among producers cutting oil output.
Additionally, higher oil prices are expected to help the Saudi Arabian economy, with Brent crude reaching near multi-year highs of US$74.
“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, director of the IMF’s Middle East and Central Asia department, told Reuters.
In his presentation, Azour noted that both oil exporting and importing countries in the region can expect economic growth this year, quelling fears that the recent recovery in oil prices will ease pressure on Riyadh enough for the pace of economic and fiscal reforms to slow.
Saudi Arabia has projected a budget deficit of US$52 billion in 2018, or 7.3 percent of GDP, down US$9 billion from last year’s $61 billion.
In an interview with CNBC on Wednesday (May 2), Saudi Arabia’s finance minister, H.E. Mohammed bin Abdullah Al-Jadaan, spoke about the country’s reform, and whether speculative higher oil prices could impede reform efforts.
“Not at all, not at all,” he said. “I can assure you that higher oil prices would only help reduce the deficit and build the reserves. We will continue our reform.” The Saudi official also confirmed that the country still plans to balance its budget by 2023.