* Pace of austerity appropriate -IMF regional director
* Economic growth slowing sharply this year
* IMF says spending cuts would threaten five-year target
* Budget deficit to shrink but remain very high this year
* Acknowledges great uncertainty in economic forecasts
By Andrew Torchia
DUBAI, Oct 19 The International Monetary Fund
feels the pace of Saudi Arabia's austerity drive is broadly
appropriate and there is little room for Riyadh to ease up on
the spending cuts that have slowed economic growth sharply, a
senior IMF official said.
Its budget strained by low oil prices, the Saudi government
has slashed capital spending this year and delayed payments that
it owes to some companies, while last month it announced cuts to
allowances for public sector workers.
Gross domestic product growth fell to 1.4 percent
year-on-year in the second quarter, the lowest in more than
three years. The non-oil sector - the part of the economy
directly affecting most people's living standards - expanded
just 0.4 percent, after shrinking 0.7 percent in the first
Masood Ahmed, director of the IMF's Middle East department,
said Riyadh could not soften austerity policies significantly
without endangering its goal of balancing its budget in about
"I don't see there is a lot of scope for postponing fiscal
consolidation," he told Reuters in an interview.
Ahmed said the IMF expected Saudi Arabia to run a fiscal
deficit of 13.0 percent of GDP this year, compared to an
estimated 15.9 percent last year. The Fund projects next year's
gap at 9.5 percent.
Months-long delays in state payments to construction firms
have hit the sector hard, forcing some companies into severe
financial difficulties. Ahmed said the delays were "not a
preferred method" of cutting the budget deficit but it was hard
to impose austerity without pain.
The IMF expects Saudi economic growth to bottom out at 1.2
percent this year, rebounding to 2.0 percent in 2017. Some
private analysts think growth could be near zero this year.
In a twice-yearly report on regional economies published
this month, the IMF said it was difficult to estimate how much
austerity policies would slow growth in the Gulf oil exporters,
and that any forecasts could prove wrong by a wide margin.
"An adverse feedback loop between budget spending cuts and
tightening credit conditions could reduce the private sector's
ability to pick up the slack created by the shrinking public
sector," it said.
(Editing by John Stonestreet)