IMF Urges Saudi Arabia To Consider Increasing VAT Rate

International Monetary Fund hails success of VAT system in Saudi Arabia, says 5% rate could be raised in consultation with other Gulf countries.

Higher public spending will push Saudi Arabia’s budget deficit to 7 per cent of gross domestic product this year, the International Monetary Fund said on Wednesday, a forecast well above the government’s own projection.

The IMF’s forecast assumes that Saudi oil output will average 10.2 million barrels a day and oil prices will average $65.5 a barrel in 2019, it said in a statement after a staff visit to the kingdom. The IMF said the fiscal deficit was 5.9 per cent in 2018.

The Saudi government has forecast a budget deficit of 4.2 per cent of GDP this year.

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Saudi Minister of Finance Mohammed al-Jadaan said in a statement the IMF view shows the Saudi government’s progress in implementing economic and structural reforms, as first-quarter budget data showed.

The kingdom recorded a budget surplus of SAR27.8bn ($7.4bn) in the January-March period, its first surplus since oil prices plunged in 2014.

The IMF said the introduction of a value-added tax has been successful, but the Saudi government should consider raising it from 5 per cent, which is low by global standards, in consultation with other Gulf governments.

A reduction in the government wage bill, a more measured increase in capital spending, and better targeting of social benefits will all yield savings, it said.

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The IMF said real non-oil growth is expected to strengthen to 2.9 per cent in 2019, boosting overall economic growth to 1.9 per cent, higher than its earlier projection of 1.8 per cent.

It said an increase in oil prices since the turn of the year is boosting confidence, but it was difficult to assess future developments in the oil market given uncertainties about production in some countries.

Brent crude futures were trading at $71.60 a barrel on Wednesday. The Saudi economy grew by 2.2 per cent last year, after shrinking in 2017.