Saudi Arabia may run out of financial assets in 5 years, warns IMF

IMF says Bahrain and Oman are also at risk of exhausting their financial assets by 2020

Saudi Arabia may run out of financial assets in five years' time if current spending policies are maintained, the International Monetary Fund has warned.

The slump in oil prices has led to Saudi Arabia's fiscal health coming under pressure, the IMF said. The kingdom will post a budget deficit of more than 20 per cent of gross domestic product this year, amounting to between $100 billion to $150 billion, according to the lender's estimates.

Further, the IMF warned that Bahrain and Oman are also at risk of exhausting their financial assets by 2020. However, the lender asserted that the financial assets of the UAE, Kuwait and Qatar could last for another 20 years under current policies.

"For most countries, the fiscal measures currently being considered are likely to be inadequate to achieve the needed medium-term fiscal consolidation," IMF said in a report released on October 21.



"Because the oil price drop is likely to be large and persistent, oil exporters will need to adjust their spending and revenue policies to secure fiscal sustainability, attain intergenerational equity, and gradually rebuild space for policy manoeuvring," the IMF said.

IMF director of Middle East and Central Asia, Masood Ahmed, said: “There are difficult decisions that will need to be made in terms of cutting spending.”

Ahmed said that adjustments to policies should include finding ways to minimise public spending and diversify income away from oil; pointing mostly at the need to cut subsidies and shrink the public sector wage bill. “You could try to postpone some capital projects... you could look at energy prices, which are still subsidised or below international prices in most of the countries in the region.”



Last month, Saudi Arabia's finance minister Ibrahim Abdulaziz al-Assaf said "unnecessary expenses" would be reduced and some infrastructure projects delayed to make up for reduced revenue from lower oil prices. "We have built reserves, cut public debt to near-zero levels and we are now working on cutting unnecessary expenses while focusing on main development projects and on building human resources in the kingdom," he said.

This article originally appeared on Bloomberg.