The Saudi Arabian economy is in a “sweet spot”, with higher oil prices allowing the Kingdom to boost spending while not having a significant impact on the country’s fiscal balance, according to Bank of America Merrill Lynch Global Research.
“Our meetings on Saudi Arabia comfort us in our view that the economy is in a sweet spot. Higher oil prices are allowing the focus on boosting activity not to materially impact fiscal balances,” the note said, published following the IMF and World Bank Spring meetings held in Washington DC this month.
“With a more entrenched current account surplus possible this year, FX reserves could increase this year,” the note said.
The bank forecasts the country will continue to push forward with its reform process regardless of the rising price of oil. Many of Saudi Arabia’s reforms are part of its Vision 2030 that aims to diversify the country’s economy away from its reliance on oil.
Brent oil reached a three-and-a-half year high on 19 April, hitting $74.74 a barrel.
“Reforms are likely to broadly proceed, even at these levels of oil prices, although spending may increase further above baseline expectations,” the note said.
The bank was also upbeat about Egypt’s economic prospects, noting that the country’s “macro stablization” is continuing and that its reform program, which includes cutting fuel subsidies and reforming the tax system, remains “intact”.
“Authorities are on track to achieve a small 0.2 percent of GDP primary surplus this fiscal year. The target is to bring the primary surplus to 2 percent of GDP next fiscal year, and maintain it there going forward,” it said.
By Rebecca Spong
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