Saudi Arabia will rely on fiscal loosening to “balance out” the tight monetary policy imported from the US Federal Reserve, a senior government official said, even as turmoil in oil markets injects more uncertainty for the kingdom’s budget.
(Bloomberg) — Saudi Arabia will rely on fiscal loosening to “balance out” the tight monetary policy imported from the US Federal Reserve, a senior government official said, even as turmoil in oil markets injects more uncertainty for the kingdom’s budget.
Speaking in an interview with Bloomberg Television on Thursday, Minister of Economy and Planning Faisal bin Fadhil Alibrahim described Saudi Arabia as having an “expansionary fiscal environment” that he said will offset the impact of higher interest rates.
The world’s largest oil exporter has largely moved in lockstep with the US to protect its currency peg to the dollar even as the Fed embarked on its most aggressive tightening campaign in a generation to cool off inflation.
But price gains in Saudi Arabia have been far more modest, driven recently by apartment rental costs. A cap on domestic fuel prices introduced in 2021 has been among factors constraining inflation.
While pushing interest rates higher, Saudi Arabia has already enacted fiscal policies to give its economy an extra kick. Expenditure rose at double-digit rates over the past year even as authorities tried to keep spending in check during a period of high oil prices.
In 2022, the kingdom had the highest annual income from oil sales abroad during Mohammed bin Salman’s time as crown prince and de facto ruler. The windfall, alongside higher production volumes, made Saudi Arabia’s economy the fastest growing in the Group of 20 last year and helped it run a fiscal surplus for the first time in nearly a decade.
Alibrahim said he was confident his country would meet its growth forecast for this year and keep the non-oil economy expanding at a pace similar or faster than last year’s. Authorities are also on track to implement multi-trillion-dollar plans to diversify the economy and turn the kingdom into a major investment and tourism center, he said.
“We are very confident to fund everything we set out to do by 2030,” he said, referring to the crown prince’s blueprint for transforming the Saudi economy and society.
When asked how falling oil prices might impact the budget for this year, Alibrahim said “it’s too early to tell.”
The government’s latest fiscal outlook, unveiled in December, showed it expected to run a surplus of 16 billion riyals ($4.3 billion) in 2023, nearly double its previous estimate. The economy is forecast to expand 3.1%.
Oil on Thursday held near a 15-month low as a banking-sector turmoil continued to roil financial markets.
“We are confident in the long-term view we had earlier,” Alibrahim said.
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