Saudi Arabia says fiscal expansion should offset Fed rate hikes

(Bloomberg) – Saudi Arabia will rely on fiscal easing to “balance” tightening monetary policy imported by the US Federal Reserve, a senior government official said, even as the turmoil in oil markets brings more uncertainty to the kingdom’s budget bring.

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In an interview with Bloomberg Television on Thursday, Economy and Planning Minister Faisal bin Fadhil Alibrahim described Saudi Arabia as having an “expansive fiscal environment” that will offset the impact of higher interest rates.

The world’s largest oil exporter has moved largely in step with the US to protect its currency peg to the dollar even as the Fed launched its most aggressive tightening campaign in a generation to cool inflation.

However, gains in Saudi Arabia have been far more modest owing to housing rental costs of late. A cap on domestic fuel prices introduced in 2021 is among the factors limiting inflation.

As Saudi Arabia pushes interest rates higher, it has already taken fiscal measures to give its economy an extra boost. Spending rose double-digits last year even as authorities tried to keep spending under control during a period of high oil prices.

In 2022, during Mohammed bin Salman’s time as crown prince and de facto ruler, the kingdom had the highest annual revenue from overseas oil sales. The windfall, coupled with higher output, made Saudi Arabia’s economy the fastest-growing in the Group of 20 last year and helped it run a budget surplus for the first time in almost a decade.

Alibrahim said his country will meet its growth forecast for this year and plans to let the non-oil economy grow at a similar or faster pace than last year. 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 hub, he said.

“We are very confident that by 2030 we can fund whatever we set out to do,” he said, referring to the crown prince’s plan to transform the Saudi economy and society.

Asked how falling oil prices could affect this year’s budget, Alibrahim said, “It’s too early to tell.”

The government’s latest budget outlook, released in December, showed it expected a surplus of 16 billion riyals ($4.3 billion) in 2023, nearly double its previous estimate. The economy is expected to grow by 3.1%.

Oil heads for biggest weekly loss this year after banking turmoil spread to global markets.

“We are always evaluating different scenarios and looking at what their outcomes and impacts may be, and we adjust as needed,” Alibrahim said. “We’re very confident about the long-term perspective we used to have.”

(Updates oil performance in penultimate paragraph.)

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