JEDDAH: The International Monetary Fund has welcomed accelerated economic reforms by Saudi Arabia to reduce its reliance on oil and said the Kingdom was cutting spending at the right speed to cope with its budget deficit.

The IMF said it approved of the way in which the government was financing its deficit with a combination of drawing down its financial reserves and issuing debt at home and abroad.

It said the Vision 2030 plan, announced last month, sets a bold and far-reaching transformation of the economy to diversify growth, reduce dependence on oil and increase the role of the private sector.

Over the past 12 months “there has been a significant acceleration in reforms in Saudi Arabia,” IMF official Tim Callen said after leading a team to Saudi Arabia this month for annual consultations with the Fund.

“Saudi fiscal policy is appropriately adjusting to the drop in oil prices,” said the IMF, welcoming the control of public spending and energy price reforms.

The IMF also said the exchange rate peg of the riyal to the US dollar continues to serve Saudi Arabia well.

The Saudi banking sector is strong and well-positioned to weather a slowing economy, and tightening liquidity is not yet hurting credit growth, according to the IMF.

It welcomed the planned introduction of a value-added tax in 2018 and other tax measures. It said more actions were needed to balance a budget deficit estimated at 14 percent of gross domestic product this year.

“Fiscal consolidation should include further adjustments in domestic energy prices, firm control of expenditures, and further increases in non-oil revenues,” the IMF said.