The International Monetary Fund (IMF) has suggested in a report that Saudi Arabia should consider raising VAT from five to 10 percent, in consultation with the Gulf Cooperation Council (GCC).
The organization went on to praise the introduction of VAT in the Kingdom in 2018 as a “landmark achievement, with revenue collections exceeding expectations.” The report was released in July but embargoed until Monday.
Saudi Arabia, the region’s largest economy, is largely dominated by the hydrocarbon sector, although efforts have been made by authorities to diversify the economy under the Vision 2030 initiative.
Measures have been taken by the country in recent years to control its production of crude oil in concert with other oil producing nations. At the World Energy Congress on Monday, Saudi Arabia’s new energy minister Prince Abdulaziz bin Salman said that this policy would continue.
The IMF went on to commend the Kingdom for its reform agenda. The country’s financial market reforms and domestic debt market reforms culminated in the inclusion of Saudi Arabia in the MSCI and FTSE Russell emerging market indexes this year, together generating billions of dollars of foreign investment.
“The IMF report reaffirms the significant progress made by the Kingdom as a result of implementing many structural reforms planned in accordance with the Vision Realization Programs under Saudi Vision 2030, especially the reforms regarding combating corruption, money laundering and combating the financing of terrorism,” said Saudi Arabian Minister of Finance Mohammed bin Abdullah al-Jadaan in statement from state press agency SPA.
The report went on to make a number of recommendations for further policy action. This included the development of non-oil revenues and the small and medium sized enterprises (SME) sector – SMEs currently account for a very small proportion of the Saudi Arabian economy.
The IMF expects the non-oil sector to grow 2.9 percent in 2019, off the back of increased government spending and confidence. Real GDP growth, however, is projected to slow to 1.9 percent with real oil growth slowing to 0.7 percent as oil production cut policies are implemented. This projection is in line with other recent reports.
“Most of the recommendations laid out in the 2019 Article IV Consultation report are in line with the measures taken by the Government that would achieve fiscal sustainability according to best practices, including the continuous progress in reforms to improve efficiency of public financial management, and work to achieve financial stability and spur economic growth,” added al-Jadaan.