IMF offers Riyadh praise and words of caution

      Published on Wednesday, 5 September , 2018      90 Views     
IMF offers Riyadh praise and words of caution

  • Saudi News

Jareer Elass

The most recent International Monetary Fund (IMF) report on Saudi Arabia is bullish on Riyadh’s economic reforms.

The IMF’s analysis indicates the organisation is pleased with the pace of reform and economic revitalisation in Saudi Arabia after expressing concern last November that the Saudis were moving too quickly in implementing changes that could backfire and harm the domestic economy.

In its August report, the IMF contended that economic measures enacted by the government of King Salman bin Abdulaziz Al Saud contributed to strong non-oil growth, an increase in Saudi real GDP and the shrinking of the budget deficit.

The measures enhance the domestic business environment, energy-related subsidy cuts and the introduction of taxes on citizens and foreign workers.

“Growth is expected to pick up further over the medium-term as reforms take hold and oil output increases,” the IMF report stated.

The IMF expressed concerns, however, about the effect that a global oil price collapse could have on the Saudi budget unless Riyadh exhibits sensible spending restraint. It said that, while global oil price trends have had a positive effect on Riyadh’s fiscal and external balances, “higher oil prices provide both an opportunity and a risk to the fiscal reforms.”

Interestingly, the IMF does not say that a significant delay in the much-anticipated initial public offering of state oil and gas conglomerate Saudi Aramco would negatively affect growth in the kingdom’s non-oil economy. Reports suggest that the limited sale of Saudi Aramco shares has been shelved for the foreseeable future.

IMF Mission Chief for Saudi Arabia Tim Callen, speaking after the report’s release, said: “Aramco was one part of the reform programme. Other parts are moving ahead pretty well.” He added that the IMF’s forecast of improved Saudi economic growth over the next few years was based on the Saudi government continuing its broad range of reforms.

While praising the reforms introduced under the kingdom’s economic overhaul programme known as Saudi Vision 2030, the IMF cautioned Riyadh against raising public spending amid higher oil prices. The IMF report noted: “The increase in spending in 2018 has increased the vulnerability of the budget to an unexpected drop in oil prices, and these vulnerabilities will rise further if spending increases in response to the recent increase in oil prices.”

The IMF stressed the need for the Saudi government to ensure that “spending remains at a sustainable level in different oil price environments.” The Saudi government’s 2018 budget is the kingdom’s largest ever, with spending put at $261 billion and an additional $30 billion of spending deriving from the sovereign wealth fund and the national development fund.

The IMF report predicted that the kingdom’s real GDP would increase 1.9% in 2018 — after contracting 0.9% in 2017 — having been buffered by a 2.3% rise in non-oil growth, a sizeable leap from the 1.1% rise in the non-oil sector in 2017.

The IMF commended Riyadh for prioritising job creation for Saudi nationals, noting that “reforms should focus on levelling the playing field between Saudis and expatriate workers in areas where Saudis are likely to work.” The unemployment rate of Saudi nationals rose from 12.3% to 12.8% last year but the unemployment rate of Saudi women declined in 2017 to 31% from 34.5% the previous year, the report stated.

The kingdom’s fiscal deficit was anticipated to fall to 4.8% of GDP in 2018 — from 9.3% in 2017 — and plunge even more dramatically to 1.7% of GDP in 2019. The Saudi government’s imposition of a 5% value added tax at the beginning of 2018 is partly credited for shrinking the budget deficit, although higher crude prices have certainly helped.

The IMF predicted that declining oil prices would mean that the kingdom’s budget deficit will widen towards 3.6% of GDP in 2023, the year when Riyadh had hoped to balance its budget.

King Salman’s government had pledged to reach a balanced budget by 2020 but the IMF in its November 2017 report argued that the kingdom could comfortably delay balancing its budget until 2022, stating that the “strong fiscal buffers, the availability of financ­ing and the current cyclical posi­tion of the economy mean that rapid fiscal consolidation is nei­ther necessary nor desirable.”

In its analysis of the Saudi economy, the IMF said the Saudi government’s goal of a balanced budget by 2023 remains “appropriate… but if oil prices are higher than in the budget, the additional revenues should be saved.”

The IMF is clearly advising Riyadh to ponder that possible rainy day five years away when oil prices could be substantially lower while spending has continued unabated.

Category Saudi News | 2018/09/05 latest update at 11:00 PM
Source : Arab Weekly | Photocredit : Google
Comments Add comment

Related Articles

The editorial staff of Saudi Arabia Today would like to give all of its readers from Gulf and Saudi Arabia and the whole world the opportunity to participate actively in the development of the website! If you have something interesting, fun, scandalous - just something worth to be seen from more people. Capture it and share it in the Saudi Arabia Today with a short text.

Do you have information you want to reach our readers?

Send article/s

You can subscribe to our Facebook, Twitter and Google pages or use our RSS feed channel to always read the most important news about Saudi Arabia, the Gulf and the world.

Sponsored Publications

Riyadh seeks private money to transform Red Sea coast
Saudi Arabia Saudi Arabia news

Riyadh seeks private money to transform Red Sea coast

Saudi Arabia is seeking private sector investment to turn an archipelago islands, desert and mountains on its Red…

Saudi Arabia frees detained prince amid international pressure

UAE-based Udrive announces $5mln funding round

Oman tourists expected to rise to 3.5m by 2023

Saudi King Salman calls for tolerance, moderation in Ramadan message King

Saudi King Salman calls for tolerance, moderation in Ramadan message

Saudi Arabia’s King Salman bin Abdulaziz al-Saud on Sunday has called for a message of tolerance and moderation…

King Salman receives Kuwait’s National Assembly Speaker in Riyadh King

King Salman receives Kuwait’s National Assembly Speaker in Riyadh

King Salman received Kuwait’s National Assembly Speaker Marzouq Al-Ghanim and other members of the Assembly at Al-Yamamah Palace…

Saudi Arabia: King Salman welcomes Lavrov to Riyadh Gulf TV, Saudi Arabia

Saudi Arabia: King Salman welcomes Lavrov to Riyadh

King of Saudi Arabia Salman bin Abdulaziz Al-Saud received Russian Foreign Minister Sergei Lavrov and his Russian delegation…

Saudi king meets Russian foreign minister in Riyadh King

Saudi king meets Russian foreign minister in Riyadh

Saudi Arabia’s King Salman met Russian Foreign Minister Sergei Lavrov in Riyadh on Tuesday, footage on the Russian…


Popular in GULF TV

PIRELLI “DREAMING” – THE CAL 2019 making of Full Version | Fashion Channel


A photographic tale of the aspirations of four women and their determination to achieve their goals, each one…

Latest videos in GULF TV





Science & Technology