Citing Saudi Arabia’s bold reform program under Vision 2030 announced in 2016, the IMF has concluded that non-oil growth in the Kingdom is expected to pick up this year.
The IMF in its latest assessment of the Saudi Arabian economy commended the progress in implementing the ambitious reform agenda. They emphasized that proper calibration and sequencing of reforms will be crucial to their success.
The Kingdom’s “non-oil growth is projected to pick up to 1.7 percent in 2017,” it said, while overall real GDP growth is expected to be close to zero as oil GDP declines in line with Saudi Arabia’s commitments under the agreement between OPEC and other non-OPEC producers.
But growth is expected to strengthen over the medium-term. It noted that the Saudi economy is adjusting to the effects of lower oil prices and fiscal consolidation, but that non oil growth is expected to pick up this year and overall growth is expected to strengthen over the medium term as structural reforms under the 2030 Vision are implemented.
“The authorities have made considerable progress in initiating the implementation of their ambitious reform agenda. 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,” according the statement released on Friday based on a consultation held on July 17, 2017.
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The IMF statement, however, points out that risks mainly come from uncertainties about future oil prices. Job growth has weakened, and the unemployment rate among Saudi nationals has increased to 12.3 percent, it noted.
The Kingdom’s fiscal deficit is projected to narrow substantially in the coming years. “It is expected to decline from 17.2 percent of GDP in 2016 to 9.3 percent of GDP in 2017 and to just under 1 percent of GDP by 2022.”
The Consumer Price Index has also turned negative in recent months, it noted, after increasing in early 2016 due to higher energy and water prices. “It is, however, expected to increase over the next year due to the recently introduced excises taxes, further energy price reforms, and the introduction of the VAT at the beginning of 2018.”
The Executive Directors in their assessment welcomed the direction of the authorities’ fiscal reforms and agreed that a large, sustained, and well paced fiscal adjustment is needed over the medium term.
Boosting non-oil revenue
Efforts to enhance non oil revenue were commended, and emphasized the importance of establishing an effective and efficient tax system. They noted the recent implementation of excises on tobacco and carbonated/energy drinks, and welcomed the commitment to introduce the VAT at the beginning of 2018.
They noted the good progress being made in identifying and removing obstacles to private sector growth, and welcomed the intensive consultation with the business community. They also welcomed the authorities’ privatization and public private partnership plans.
Highlighting the importance of strengthening education and training, the Directors agreed that increasing the employment of Saudi nationals in the private sector is essential. In this regard,thare was a need yo incentivize nationals to look for private sector work. They also called for further steps to boost female labor force participation and employment.