Real GDP growth this year is forecast to be 0.1 per cent from the 0.4 per cent estimated in April. The Saudi economy grew 1.7 per cent last year, according to the IMF.
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In its Friday report, the IMF said non-oil growth in the kingdom would pick up to 1.7 per cent this year, from 0.2 per cent last year, but oil GDP growth would decline 1.9 per cent after increasing 3.8 per cent in 2016.
Wider growth is expected to strengthen over the medium term as structural reforms related to Vision 2030 are implemented, the organisation added.
But it stressed there were uncertainties surrounding future oil prices and as to how the reforms would affect the economy, noting unemployment among Saudis had increased to 12.3 per cent.
The IMF forecast Saudi’s fiscal deficit would decline from 17.2 per cent of GDP in 2016 to 9.3 per cent in 2017 and just under 1 per cent by 2022 assuming non-oil revenue reforms are implemented, energy prices are increased and cost savings are realised.
During this period the deficit is expected to be financed by a combination of asset drawdowns and domestic and international borrowing.
The kingdom will also introduce a 5 per cent value added tax rate next year after implementing a selective tax on tobacco and soft drinks in June.
“Fiscal consolidation efforts are beginning to bear fruit, progress with reforms to improve the business environment are gaining momentum, and a framework to increase the transparency and accountability of government is largely in place,” the IMF said.
“Effective prioritisation, sequencing, and coordination of the reforms is essential, and they need to be well-communicated and equitable to gain social buy-in and ensure their success.”
Saudi Arabia’s Ministry of Finance welcomed the report in a statement carried by Saudi Press Agency.
“Although there is a lot of optimism, we are aware that there are also challenges that require intensive action to confront them, under the wise leadership committed to the comprehensive reform process, the economy and through substantive analysis,” finance minister Mohammed Al-Jadaan said.
The IMF also lowered its growth forecasts for the UAE in recent weeks.
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